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<SEC-DOCUMENT>0001188112-03-000388.txt : 20030626
<SEC-HEADER>0001188112-03-000388.hdr.sgml : 20030626
<ACCEPTANCE-DATETIME>20030626162025
ACCESSION NUMBER:		0001188112-03-000388
CONFORMED SUBMISSION TYPE:	20-F
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030626

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NICE SYSTEMS LTD
		CENTRAL INDEX KEY:			0001003935
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRONIC COMPUTERS [3571]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		20-F
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-27466
		FILM NUMBER:		03758836

	BUSINESS ADDRESS:	
		STREET 1:		8 HAPNINA STREET
		STREET 2:		P.O.B. 690
		CITY:			RA'ANANA
		STATE:			L3
		ZIP:			43107
		BUSINESS PHONE:		972-9-775-3777
</SEC-HEADER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>t20f-29996.txt
<DESCRIPTION>20-F
<TEXT>
<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 2003
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

                Annual Report pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act Of 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                         Commission file number 0-27466

                                NICE-SYSTEMS LTD.
  ----------------------------------------------------------------------------
    (Exact name of Registrant as specified in its charter and translation of
                         Registrant's name into English)

  ----------------------------------------------------------------------------
                                     ISRAEL

                 (Jurisdiction of incorporation or organization)

             8 Hapnina Street, P.O. Box 690, Ra'anana 43107, Israel
  ----------------------------------------------------------------------------
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:


                                                  Name of Each Exchange
              Title of Each Class                  On Which Registered
              -------------------                  -------------------

                     NONE                                  NONE
       --------------------------------     ---------------------------------

 Securities registered or to be registered pursuant to Section 12(g) of the Act:

                  AMERICAN DEPOSITARY SHARES, EACH REPRESENTING
                        ONE ORDINARY SHARE, PAR VALUE ONE
                          NEW ISRAELI SHEKEL PER SHARE
  ----------------------------------------------------------------------------
                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:

                                      NONE
  ----------------------------------------------------------------------------
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
                        15,704,425 ORDINARY SHARES, PAR VALUE NIS 1.00 PER SHARE
                        --------------------------------------------------------

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

         Yes   X           No
            -------          -------

  Indicate by check mark which financial statements the registrant has elected
                                   to follow:

         Item 17           Item 18   X
                --------          -------

================================================================================
<PAGE>

                                PRELIMINARY NOTE

     THIS ANNUAL REPORT CONTAINS HISTORICAL INFORMATION AND FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 WITH RESPECT TO NICE'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND,"
"MAY," "PLAN," "PROJECT" AND "SHOULD" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO
NICE OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS REFLECT THE CURRENT VIEWS AND ASSUMPTIONS OF NICE WITH RESPECT
TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES. MANY FACTORS COULD
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF NICE TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING, AMONG
OTHERS, CHANGES IN GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN CURRENCY
EXCHANGE RATES AND INTEREST RATES, DIFFICULTIES OR DELAYS IN ABSORBING AND
INTEGRATING ACQUIRED OPERATIONS, PRODUCTS, TECHNOLOGIES AND PERSONNEL, CHANGES
IN BUSINESS STRATEGY AND VARIOUS OTHER FACTORS, BOTH REFERENCED AND NOT
REFERENCED IN THIS ANNUAL REPORT. THESE RISKS ARE MORE FULLY DESCRIBED UNDER
ITEM 3, "KEY INFORMATION - RISK FACTORS" OF THIS ANNUAL REPORT. SHOULD ONE OR
MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED,
PLANNED OR PROJECTED. NICE DOES NOT INTEND OR ASSUME ANY OBLIGATION TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.

     In this annual report, all references to "NICE," "we," "us" or "our" are to
NICE Systems Ltd, a company organized under the laws of the State of Israel, and
its wholly owned subsidiaries, NICE Systems Inc., NICE Systems GmbH, NICE
Systems Canada Ltd., NICE CTI Systems UK Ltd., STS Software Systems (1993) Ltd.,
NiceEye BV, NICE Systems S.A.R.L, NICE APAC Ltd., NiceEye Ltd. and Racal
Recorders Ltd.

     In this annual report, unless otherwise specified or unless the context
otherwise requires, all references to "$" or "dollars" are to U.S. dollars and
all references to "NIS" are to New Israeli Shekels. Except as otherwise
indicated, the financial statements of and information regarding NICE are
presented in U.S. dollars.

                                       ii
<PAGE>
<TABLE>
<CAPTION>

                                                  TABLE OF CONTENTS

                                                                                                                 PAGE
                                                                                                                 ----

                                                        PART I
<S>          <C>                                                                                                <C>
Item 1.      Identity of Directors, Senior Management and Advisers........................................         2
Item 2.      Offer Statistics and Expected Timetable......................................................         2
Item 3.      Key Information..............................................................................         2
Item 4.      Information on the Company...................................................................        16
Item 5.      Operating and Financial Review and Prospects.................................................        34
Item 6.      Directors, Senior Management and Employees...................................................        60
Item 7.      Major Shareholders and Related Party Transactions............................................        75
Item 8.      Financial Information........................................................................        77
Item 9.      The Offer and Listing........................................................................        80
Item 10.     Additional Information.......................................................................        82
Item 11.     Quantitative and Qualitative Disclosures About Market Risk...................................        95
Item 12.     Description of Securities Other than Equity Securities.......................................        96

                                                       PART II

Item 13.     Defaults, Dividend Arrearages and Delinquencies..............................................        97
Item 14.     Material Modifications to the Rights of Security Holders and Use of Proceeds.................        97
Item 15.     Controls and Procedures......................................................................        97
Item 16.     [Reserved]...................................................................................        97

                                                       PART III

Item 17.     Financial Statements.........................................................................        98
Item 18.     Financial Statements.........................................................................        98
Item 19.     Exhibits.....................................................................................        98
Index to Financial Statements.............................................................................       F-1
</TABLE>


<PAGE>

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

              Not Applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

              Not Applicable.

ITEM 3.  KEY INFORMATION.

SELECTED FINANCIAL DATA

     The following selected consolidated financial data as of December 31, 2001
and 2002 and for the years ended December 31, 2000, 2001 and 2002 have been
derived from our audited consolidated financial statements. These financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP, and audited by Kost, Forer &
Gabbay, a member of Ernst & Young Global. The consolidated selected financial
data as of December 31, 1998, 1999 and 2000 and for the years ended December 31,
1998 and 1999 have been derived from other consolidated financial statements not
included in this annual report and have also been prepared in accordance with
U.S. GAAP and audited by Kost, Forer & Gabbay, a member of Ernst & Young Global.
The selected consolidated financial data set forth below should be read in
conjunction with and are qualified by reference to "Item 5, Operating and
Financial Review and Prospects" and the consolidated financial statements and
notes thereto and other financial information included elsewhere in this annual
report.

                                        2
<PAGE>
<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31,
                                               -----------------------------------------------------------
                                                  1998        1999        2000         2001         2002
                                               ---------    ---------  ---------    ---------    ---------
                                                   (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<S>                                           <S>          <C>         <C>         <C>          <C>
OPERATING DATA:
Revenues.....................................
     Products                                     N/A          N/A        N/A        $112,634     $134,783
     Services                                     N/A          N/A        N/A          14,474       27,722
                                               ---------    ---------  ---------    ---------    ---------
Total revenues                                    90,970      117,411    153,163      127,108      162,505
                                               ---------    ---------  ---------    ---------    ---------
Cost of revenues.............................
      Products                                    N/A          N/A        N/A          54,321       58,693
      Services                                    N/A          N/A        N/A          19,446       26,054
                                               ---------    ---------  ---------    ---------    ---------
Total cost of revenues ......................     37,038       49,020     73,554       73,767       84,747
                                               ---------    ---------  ---------    ---------    ---------
Gross profit.................................     53,932       68,391     79,609       53,341       77,758
                                               ---------    ---------  ---------    ---------    ---------
Operating expenses:
     Research and development, net...........      9,819       12,353     19,502       19,190       17,925
     Selling and marketing...................     18,767       25,793     35,448       35,046       40,494
     General and administrative..............     16,579       18,734     28,300       27,143       23,806
     Other special charges...................      9,733        5,415      7,646       17,967       29,092
                                               ---------    ---------  ---------    ---------    ---------
Total operating expenses.....................     54,898       62,295     90,896       99,346      111,317
                                               ---------    ---------  ---------    ---------    ---------
Operating income (loss)......................       (966)       6,096    (11,287)     (46,005)     (33,559)
Financial income, net........................      5,792        4,809      6,188        4,254        3,992
Other income (expenses), net.................          -           (4)        53       (4,846)      (4,065)
                                               ---------    ---------  ---------    ---------    ---------
Income (loss) before taxes on income.........      4,826       10,901     (5,046)     (46,597)     (33,632)
Taxes on income..............................        347           74        273          198          350
                                               ---------    ---------  ---------    ---------    ---------
Net income (loss)............................     $4,479      $10,827   $(5,319)     $(46,795)    $(33,982)
                                               =========    =========  =========    =========    =========
Basic earnings (loss) per share..............      $0.40        $0.94    $(0.43)       $(3.59)      $(2.46)
                                               =========    =========  =========    =========    =========
Weighted average number of shares used in
  computing basic earnings (loss) per share
  (in thousands).............................     11,192       11,559     12,317       13,047       13,795
                                               =========    =========  =========    =========    =========
Diluted earnings (loss) per share............      $0.37        $0.88    $(0.43)       $(3.59)      $(2.46)
                                               =========    =========  =========    =========    =========
Weighted average number of shares used in
  computing diluted earnings (loss) per
  share (in thousands).......................     12,010       12,249     12,317       13,047       13,795
                                               ---------    ---------  ---------    ---------    ---------


                                                                    AT DECEMBER 31,
                                               -----------------------------------------------------------
                                                  1998        1999        2000         2001         2002
                                               ---------    ---------  ---------    ---------    ---------
BALANCE SHEET DATA:
Working capital..............................   $126,266     $133,398   $117,319      $69,931      $79,206
Total assets.................................    179,155      206,022    251,489      210,012      236,288
Total debt...................................          -            3          -            -           24
Shareholders' equity.........................    157,207      179,070    208,577      167,018      154,536
</TABLE>

                                        3

<PAGE>

EXCHANGE RATE INFORMATION

     The following table shows, for each of the months indicated, the high and
low exchange rates between New Israeli Shekels and U.S. dollars, expressed as
shekels per U.S. dollar and based upon the daily representative rate of exchange
as reported by the Bank of Israel:

     MONTH                                            HIGH             LOW
     ----------------------                       ------------      ----------
     December 2002.........................   NIS       4.791   NIS     4.632
     January 2003..........................             4.898           4.769
     February 2003.........................             4.924           4.810
     March 2003............................             4.858           4.687
     April 2003............................             4.671           4.521
     May 2003..............................             4.577           4.373

     The following table shows, for periods indicated, the average exchange rate
between New Israeli Shekels and U.S. dollars, expressed as shekels per U.S.
dollar, calculated based on the average of the exchange rates on the last day of
each month during the relevant period as reported by the Bank of Israel:

            YEAR                                               AVERAGE
          ---------                                      ---------------------
            1998.....................................           3.810
            1999.....................................           4.153
            2000.....................................           4.068
            2001.....................................           4.203
            2002.....................................           4.738

     On June 17, 2003, the exchange rate was NIS 4.353 per U.S. dollar as
reported by the Bank of Israel.

     The effect of exchange rate fluctuations on our business and operations is
discussed in "Item 5. Operating and Financial Review and Prospects."

DIVIDENDS

     We have never declared or paid dividends on our ordinary shares. We intend
to retain our earnings for future growth and therefore do not anticipate paying
any cash dividends in the foreseeable future.

                                       4
<PAGE>

RISK FACTORS


GENERAL BUSINESS RISKS TO NICE BUSINESS PORTFOLIO AND STRUCTURE

INTEGRATION OF THALES CONTACT SOLUTIONS FOLLOWING THE ACQUISITION IN NOVEMBER
2002 MAY PLACE SIGNIFICANT DEMANDS ON OUR OPERATIONS AND FINANCIAL RESOURCES.

     We completed the acquisition of Thales Contact Solutions (or TCS) in
November 2002. We cannot guarantee the successful integration of top management,
people, product platforms, partners and distribution channels. The integration
of TCS also requires a high level of management attention, which further puts
risk on day-to-day business management. The integration of acquired companies
may place significant demands on our operations and financial resources.
Acquisitions of companies involve financial, operational and legal risks,
including the difficulty of assimilating operations and personnel of the
acquired companies and of maintaining uniform standards, controls, procedures
and policies. Any failure to effectively integrate any acquired company could
have a material adverse effect on our business, financial condition and results
of operations.

THE MARKETS IN WHICH WE OPERATE ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES
AND FREQUENT NEW PRODUCTS AND SERVICE INTRODUCTIONS. WE MAY NOT BE ABLE TO KEEP
UP WITH THESE RAPID TECHNOLOGICAL AND OTHER CHANGES.

     We are operating in several markets, each characterized by rapidly changing
technology and evolving industry standards. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable and can exert price pressures on
existing products. We anticipate that a number of existing and potential
competitors will be introducing new and enhanced products. Our ability to
anticipate changes in technology and industry standards and to successfully
develop and introduce new, enhanced and competitive products, on a timely basis,
in all the markets where we operate, will be a critical factor in our ability to
grow and be competitive. As a result, we expect to continue to make significant
expenditures on research and development, particularly with respect to new
software applications, which are continuously required in all our business
areas. We cannot assure you that the market or demand for our products will grow
as rapidly as we expect, or if at all, that we will successfully develop new
products or introduce new applications for existing products, that such new
products and applications will achieve market acceptance or that the
introduction of new products or technological developments by others will not
render our products obsolete. Our inability to develop products that are
competitive in technology and price and responsive to customer needs could have
a material adverse effect on our business, financial condition and results of
operations.

WE MAY NOT SUCCEED IN MAKING ADDITIONAL ACQUISITIONS OR BE EFFECTIVE IN
INTEGRATING SUCH ACQUISITIONS.

     One of our business strategies is to pursue acquisitions of businesses,
products and technologies that are complementary to those of our businesses. In
the past, we have entered into a number of acquisitions and we may make
additional acquisitions in the future. There can be no

                                       5
<PAGE>

assurance that we will be successful in making additional acquisitions or
effective in integrating such acquisitions. In addition, if we consummate one or
more significant acquisitions in which the consideration consists, in whole or
in part, of ordinary shares or ADSs, shareholders would suffer dilution of their
interests in us.

WE MAY BE UNABLE TO MANAGE OUR EXPANSION AND ANTICIPATED GROWTH EFFECTIVELY.

     In 2002 we have expanded our presence in Europe (mainly in the UK) and the
Middle East and Africa (or EMEA) through organic growth and through the
acquisition of TCS. The growth in our business in EMEA is still in its early
stage, and particularly, we are just beginning to develop our digital video
business in EMEA. We expect continued growth, particularly in connection with
the enhancement and expansion of our operations in EMEA as well as in the Asia
Pacific (or APAC) region. However, we cannot assure you that our revenues will
increase as a result of this expansion or that we will be able to recover the
expenses we incurred in effecting the expansion. Failure to effectively manage
expansion of our sales, marketing, service and support organizations could have
a negative impact on our business.

WE HAVE RECENTLY MIGRATED TOWARDS THE OUTSOURCING OF THE MANUFACTURING OF OUR
KEY PRODUCTS. THE FAILURE OF OUR SUPPLIERS TO MEET OUR QUALITY OR DELIVERY
REQUIREMENTS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.

     During 2002, we implemented a manufacturing agreement with Flextronics
Israel Ltd., a global electronics manufacturing services company. Under this
agreement Flextronics is providing us with a turnkey manufacturing solution from
order receipt to product shipment including purchasing, manufacturing, testing,
configuration, and delivery services. This agreement currently covers all our
products. With the acquisition of TCS, we assumed a contract manufacturing
agreement with INSTEM (of the UK) for all ex-TCS products. Consequently, we are
now fully dependent on Flextronics and INSTEM and the manufacturing of our
products is not in our control. We may experience delivery delays due the
inability of the outsourcers to consistently meet our quality or delivery
requirements. If these suppliers or any other supplier were to cancel contracts
or commitments with us or fail to meet the quality or delivery requirements
needed to satisfy customer orders for our products, we could lose time-sensitive
customer orders and have significantly decreased quarterly revenues and
earnings, which would have a material adverse effect on our business, results of
operations and financial condition.

IF WE LOSE OUR KEY SUPPLIERS, OUR BUSINESS MAY SUFFER.

     Certain components and subassemblies that we use in our existing products
are purchased from a single or a limited number of suppliers. In the event any
of these suppliers are unable to meet our requirements in a timely manner, we
may experience an interruption in production until an alternative source of
supply can be obtained. Any disruption, or any other interruption of a
suppliers' ability to provide components to us, could result in delays in making
product shipments, which could have a material adverse effect on our business,
financial condition and results of operations. Although we generally maintain an
inventory for some of our components and subassemblies to limit the potential
for an interruption and we believe that we can obtain alternative sources of
supply in the event our suppliers are unable to meet our requirements in a

                                       6
<PAGE>

timely manner, we cannot assure you that our inventory and alternative sources
of supply would be sufficient to avoid a material interruption or delay in
production.

IF WE LOSE OUR KEY PERSONNEL OR CANNOT RECRUIT ADDITIONAL PERSONNEL, OUR
BUSINESS MAY SUFFER.

     Recruiting and retaining qualified engineers and computer programmers to
perform research and development and to commercialize our products as well as
qualified personnel to market and sell those products are critical to our
success. As of December 31, 2002, approximately 25% of our employees were
devoted to research and product development and 27% were devoted to marketing
and sales. An inability to attract and retain highly qualified employees may
have an adverse effect on our ability to develop new products and enhancements
for existing products and to successfully market such products.

     Our success also depends, to a significant extent, upon the continued
service of a number of key management, sales, marketing and technical employees,
the loss of whom could materially adversely affect our business, financial
condition and results of operations.

OPERATING INTERNATIONALLY EXPOSES US TO ADDITIONAL AND UNPREDICTABLE RISKS.

     We sell our products throughout the world and intend to continue to
increase our penetration of international markets. In 1998, 1999, 2000, 2001 and
2002, approximately 98%, 99%, 97%, 96% and 98%, respectively, of our total sales
were derived from sales to customers outside of Israel, and approximately 42%,
50%, 53%, 48% and 50% respectively, of our total sales were made to customers in
North America. A number of risks are inherent in international transactions.
International sales and operations may be limited or disrupted by the imposition
of governmental controls and regulations, export license requirements, political
instability, trade restrictions, changes in tariffs and difficulties in managing
international operations. We cannot assure you that one or more of these factors
will not have a material adverse effect on our international operations and,
consequently, on our business, financial condition and results of operations.

INADEQUATE INTELLECTUAL PROPERTY PROTECTIONS COULD PREVENT US FROM ENFORCING OR
DEFENDING OUR INTELLECTUAL PROPERTY AND WE MAY BE SUBJECT TO LIABILITY IN THE
EVENT OUR PRODUCTS INFRINGE ON THE PROPRIETARY RIGHTS OF THIRD PARTIES AND WE
ARE NOT SUCCESSFUL IN DEFENDING SUCH CLAIMS.

     Our success is dependent, to a certain extent, upon our proprietary
technology. We currently own ten patents (including seven in the United States)
to protect our technology and we have 46 applications pending in the United
States and other countries. We currently rely on a combination of patent, trade
secret, copyright and trademark law, together with non-disclosure and
non-compete agreements, to establish and protect the technology used in our
systems. However, we cannot assure you that such measures will protect our
proprietary technology, that competitors will not develop products with features
based upon, or otherwise similar to, our systems or that we will prevail in any
proceeding instituted by us in order to enjoin competitors from selling similar
products.

                                       7
<PAGE>

     Although we believe that our products do not infringe upon the proprietary
rights of third parties, we cannot assure you that one or more third parties
will not make a contrary claim or that we will be successful in defending such
claim. In June 2000, Dictaphone Corporation, one of our competitors, filed a
patent infringement claim relating to certain technology embedded in some of our
products. The claim is for damages for past infringement and enjoinment of any
continued infringement of Dictaphone patents. In the court's discretion, the
damages may be trebled and attorney fees awarded. As a result we might be forced
to pay significant damages and licensing fees, modify our business practices or
even be enjoined from conducting a significant part of our U.S. business. Any
such results could materially harm our business. We believe, however, that we
have a valid defense to this claim and are vigorously defending it. We have
received notification from our insurance company indicating that the claim is
not covered by our insurance policy; however, our insurance company has agreed
to reimburse for us all legal expenses that we are expending in defense of the
claim while reserving its final decision on this matter until the final outcome
of the litigation. The discovery period is closed, dispositive motions have been
filed with the Court, and we are awaiting the Court's decisions on these motions
as well as scheduling for trial.

     In April 2002, we received a letter from Dictaphone stating that several of
our products were using technology protected by additional Dictaphone patents
and offering us a licensing arrangement for these patents. We believe that none
of our products infringe upon those patents.

     From time to time, we receive "cease and desist" letters alleging patent
infringements. No formal claims or other actions (aside from Dictaphone) have
been filed with respect to such letters. We believe that none of these
allegations has merit. We cannot assure you, however, that we will be successful
in defending Dictaphone's infringement claim or other claims. We also cannot
assure you that Dictaphone's claims, or others' claims if asserted, will not
have a material adverse effect on our business, financial condition, or
operations. Defending the infringement claim or other claims could involve
substantial costs and diversion of management resources. In addition, to the
extent we are not successful in defending such claims, we may be subject to
injunctions with respect to the use or sale of certain of our products or to
liabilities for damages and may be required to obtain licenses which may not be
available on reasonable terms.

WE FACE POTENTIAL PRODUCT LIABILITY CLAIMS AGAINST US.

     We may be subject to claims that our products are defective or that some
function or malfunction of our products caused or contributed to property,
bodily or consequential damages. We minimize this risk by incorporating
provisions into our distribution and standard sales agreements that are designed
to limit our exposure to potential claims of liability. We carry product
liability insurance in the amount of $10,000,000 per occurrence and $10,000,000
overall. No assurance can be given that all claims will be covered either by the
contractual provisions limiting liability or by the insurance, or that the
amount of any individual claim or all claims will be covered by the insurance or
that the amount of any individual claim or all claims in the aggregate will not
exceed policy coverage limits.

                                       8
<PAGE>

WE MAY FACE RISKS RELATING TO GOVERNMENT CONTRACTS.

     We sell our products to, among other customers, governments and
governmental entities. These sales are subject to special risks, such as delays
in funding, termination of contracts or sub-contracts at the convenience of the
government, termination, reduction or modification of contracts or sub-contracts
in the event of changes in the government's policies or as a result of budgetary
constraints, and increased or unexpected costs resulting in losses or reduced
profits under fixed price contracts. Although to date we have not experienced
any material problems in our performance of government contracts, or in the
receipt of payments in full under such contracts, we cannot assure you that we
will not experience problems in the future.

RISKS RELATING TO ISRAEL

OUR BUSINESS MAY BE IMPACTED BY INFLATION AND NIS EXCHANGE RATE FLUCTUATIONS.

     Exchange rate fluctuations between the dollar and the NIS may negatively
affect our earnings. A substantial majority of our revenues and a substantial
portion of our expenses are denominated in dollars. However, a significant
portion of the expenses associated with our Israeli operations, including
personnel and facilities related expenses, are incurred in NIS. Consequently,
inflation in Israel will have the effect of increasing the dollar cost of our
operations in Israel, unless it is offset on a timely basis by a devaluation of
the NIS relative to the dollar. We cannot predict any future trends in the rate
of inflation in Israel or the rate of devaluation of the NIS against the dollar.
If the dollar cost of our operations in Israel increases, our dollar-measured
results of operations will be adversely affected.

WE ARE SUBJECT TO THE POLITICAL, ECONOMIC AND MILITARY CONDITIONS IN ISRAEL.

     Our headquarters, research and development and main manufacturing
facilities are located in the State of Israel, and we are directly affected by
the political, economic and military conditions to which Israel is subject.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. A state of
hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Since October 2000, there has been a high level of violence
between Israel and the Palestinians, which has led to a crisis in the entire
peace process and affected Israel's relationship with several Arab countries.
Any armed conflicts or political instability in the region could negatively
affect local business conditions and harm our results of operations. We cannot
predict the effect on the region of the increase in the degree of violence
between Israel and the Palestinians. Furthermore, several countries restrict
doing business with Israel and Israeli companies, and additional companies may
restrict doing business with Israel and Israeli companies as a result of the
recent increase in hostilities. Our products are heavily dependent upon
components imported from, and most of our sales are made to, countries outside
of Israel. Accordingly, our operations could be materially adversely affected if
trade between Israel and its present trading partners were interrupted or
curtailed.

     Some of our directors, officers and employees are currently obligated to
perform annual military reserve duty. Additionally, in the event of a military
conflict, including the ongoing conflict with the Palestinians, these persons
could be required to serve in the military for extended periods of time. We
cannot assess the full impact of these requirements on our workforce or business
and we cannot predict the effect on us of any expansion or reduction of these
obligations.

                                       9
<PAGE>

SERVICE AND ENFORCEMENT OF LEGAL PROCESS ON US AND OUR DIRECTORS AND OFFICERS
MAY BE DIFFICULT TO OBTAIN.

     Service of process upon our directors and officers most of whom reside
outside the United States, may be difficult to obtain within the United States.
Furthermore, since the majority of our assets and most of our directors and
officers are located outside the United States, any judgment obtained in the
United States against us or these individuals or entities may not be collectible
within the United States.

     There is doubt as to the enforceability of civil liabilities under the
Securities Act and the Securities Exchange Act in original actions instituted in
Israel. However, subject to certain time limitations and other conditions,
Israeli courts may enforce final judgments of United States courts for
liquidated amounts in civil matters, including judgments based upon the civil
liability provisions of those Acts.

WE DEPEND ON THE AVAILABILITY OF GOVERNMENT GRANTS AND TAX BENEFITS.

     We derive and expect to continue to derive significant benefits from
various programs and laws in Israel including tax benefits relating to our
"Approved Enterprise" programs and certain grants from the Office of the Chief
Scientist, or OCS, for research and development. To be eligible for these
grants, programs and tax benefits, we must continue to meet certain conditions,
including making certain specified investments in fixed assets and conducting
the research, development and manufacturing of products developed with such OCS
grants in Israel (unless a special approval has been granted). From time to
time, the Israeli Government has discussed reducing or eliminating the
availability of these grants, programs and benefits, and there can be no
assurance that the Government's support of grants, programs and benefits will
continue.

     Pursuant to an amendment to Israeli regulations, income from two of our
"Approved Enterprises" is exempt from income tax for only two years. Following
this two-year period, the "Approved Enterprise" will be subject to corporate tax
at a reduced rate of 10-25% (based on the percentage of foreign ownership in
each taxable year) for the following eight years. Income from the other two
"Approved Enterprises" is tax exempt for four years. Following this four-year
period, the "Approved Enterprises" are subject to corporate tax at a reduced
rate of 10-25% (based on the percentage of foreign ownership in each taxable
year) for the following six years.

     If grants, programs and benefits available to us or the laws under which
they were granted are eliminated or their scope is further reduced, or if we
fail to meet the conditions of existing grants, programs or benefits and are
required to refund grants or tax benefits already received (together with
interest and certain inflation adjustments), our business, financial condition
and results of operations could be materially adversely affected.

                                       10
<PAGE>

RISKS RELATING TO NICE BUSINESS

THE INDUSTRY FOR OUR VOICE PLATFORMS AND APPLICATIONS BUSINESS IS CHARACTERIZED
BY RAPID TECHNOLOGICAL CHANGES AND FREQUENT NEW PRODUCTS AND SERVICE
INTRODUCTIONS. WE MAY NOT BE ABLE TO KEEP UP WITH THESE RAPID TECHNOLOGICAL AND
OTHER CHANGES THAT REFLECT A HIGHLY COMPETITIVE MARKET.

     Our most significant market is the market for voice recording platforms and
related enhanced applications ( or Voice Platforms and Applications). Voice
Platforms and Applications are utilized by entities operating in the contact
center, trading floor, public safety and air traffic control segments to
capture, store, retrieve and analyze recorded data. The market for our Voice
Platforms and Applications is characterized by a group of highly competitive
vendors that are introducing rapidly changing competitive offerings around
evolving industry standards. The introduction of products embodying new
technology and the emergence of new industry standards can render existing
products obsolete and unmarketable and can exert price pressures on existing
products. We anticipate that a number of existing and potential competitors will
be introducing new and enhanced products. Our ability to anticipate changes in
technology and industry standards and to successfully develop and introduce new,
enhanced and competitive products, on a timely basis, will be a critical factor
in our ability to grow and be competitive. As a result, we expect to continue to
make significant expenditures on research and development, particularly with
respect to new software applications, which are continuously required in all our
business areas. We cannot assure you that the market or demand for our products
will grow as rapidly as we expect, or if at all, that we will successfully
develop new products or introduce new applications for existing products, that
such new products and applications will achieve market acceptance or that the
introduction of new products or technological developments by others will not
render our products obsolete. Our inability to develop products that are
competitive in technology and price and responsive to customer needs could have
a material adverse effect on our business, financial condition or results of
operations.

CONTINUING ADVERSE CONDITIONS IN INFORMATION TECHNOLOGY SECTORS MAY LEAD TO A
DECREASED DEMAND FOR OUR VOICE PLATFORMS AND APPLICATIONS AND MAY HARM OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     Our operating results may be materially adversely affected as a result of
recent unfavorable economic conditions and reduced information technology
spending, particularly in the product segments in which we compete. During 2002,
there was a decrease in demand for our Voice Platforms and Applications as
customers delayed or reduced information technology expenditures. In particular,
many enterprises, telecommunications carriers and service providers have reduced
spending in connection with contact centers, and many financial institutions
have reduced spending related to trading floors. These trends may adversely
affect the growth of sales of new Applications. If these industry-wide
conditions persist, they will likely have an adverse impact, which may be
material, on our business, financial condition and results of operations.

                                       11
<PAGE>

VOIP EXPANSION

     The expansion of the new Voice over Internet Protocol (or VOIP) in contact
centers and trading floors may lead to other companies taking leadership.
Strategic partners may change their vendor preferences. New developments of VOIP
may lead to embedded VOIP recording as part of the VOIP switch or networking
infrastructure. We cannot assure you that our products or existing partnerships
will ensure sustainable leadership.

WE DEPEND ON A NUMBER OF KEY STRATEGIC DISTRIBUTION PARTNERS FOR OUR VOICE
PLATFORM AND APPLICATION SALES

     In 2002 more than 57% of our indirect sales for Voice Platforms and
Applications came from strategic partners, which accounted for a total of 39% of
our entire Voice Platforms and Applications sales, or 32% of our entire sales.
Our competitors' ability to penetrate these strategic relationships,
particularly our relationship with AVAYA, our largest global distribution
partner, may result in a significant reduction of sales through that partner.

WE DEPEND ON THE SUCCESS OF THE NICELOG SYSTEM AND RELATED PRODUCTS.

     We are dependent on the success of the NiceLog system and related products
to maintain profitability. In 1998, 1999, 2000, 2001 and 2002, approximately and
respectively, 94%, 88%, 84%, 79%, and 78% of our revenues were generated from
sales of NiceLog systems and related products and we anticipate that such
products will continue to account for a significant portion of our sales in the
next several years. A significant decline in sales of NiceLog systems and
related products, or a significant decrease in the profit margin on such
products, could have a material adverse effect on our business, financial
condition or results of operations.

WE ARE EXPANDING THE SCOPE OF OUR VOICE PLATFORMS AND APPLICATIONS TO INCLUDE
ENTERPRISE BUSINESS PERFORMANCE MANAGEMENT SOLUTIONS. WE MAY NOT HAVE THE
SUFFICIENT RESOURCES TO SUCCESSFULLY LEAD SUCH A PROCESS.

     We are expanding the scope of our Voice Platforms and Applications to
Enterprise Performance Management solutions, with a focus on analytic software
solutions that are based on voice and data content analysis. The market for such
content analysis applications is still in its early phases. Successful
positioning of our products is a critical factor in our ability to maintain
growth. Furthermore, new potential entrants from the traditional enterprise
business intelligence and business analytics sector may decide to develop
recording and content analysis capabilities and compete with us in this emerging
opportunity. As a result, we expect to continue to make significant expenditures
on marketing. We cannot assure you that the market awareness or demand for our
new products will grow as rapidly as we expect, or if at all, that we will
successfully develop new products or introduce new applications for existing
products, that such new products and applications will achieve market acceptance
or that the introduction of new products or technological developments by others
will not adversely impact the demand for our products.

OUR SUCCESS IN THE PUBLIC SAFETY SEGMENT DEPENDS ON SEVERAL MARKETING FACTORS.

                                       12
<PAGE>

     Our ability to succeed in the public safety segment depends on our ability
to develop an effective network of distributors to the mid-low segment of the
public safety market, while facing pricing pressures and a low-end entry
barrier. We face fierce competition from players like Dictaphone, CVDS,
VoicePrint and others that results in price erosion. We believe that our ability
to sell and distribute our Voice Platforms and Applications to the public safety
market depends on a number of successful marketing and product development
initiatives, but cannot assure you of their success.

THE VIDEO PLATFORM AND APPLICATIONS MARKET IN WHICH WE OPERATE IS HIGHLY
COMPETITIVE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY.

     Another market which we service is the market for digital video products
and applications (or Video Platform and Applications). Our Video Platform and
Applications are utilized by entities in the closed circuit television (or CCTV)
security, gaming and retail industries to capture, store and analyze digital
video and related data. The market for our Video Platform and Applications is
highly competitive and includes products offering a broad range of features and
capacities. We compete with a number of large, established manufacturers of
video recording systems and distributors of similar products, as well as new
emerging players in the field. The price per channel of digital recording
systems has decreased throughout the market in recent years, primarily due to
competitive pressures. We cannot assure you that the price per channel of
digital recording systems will not continue to decrease or that our gross profit
will not decrease as a result thereof. We cannot assure you that we will be able
to compete successfully or that competition will not have a material adverse
effect on our business, financial condition and results of operations.

WE MAY BE UNABLE TO DEVELOP STRATEGIC ALLIANCES AND MARKETING PARTNERSHIPS FOR
THE GLOBAL DISTRIBUTION OF OUR VIDEO PLATFORM AND APPLICATIONS, WHICH MAY LIMIT
OUR ABILITY TO SUCCESSFULLY MARKET AND SELL THESE PRODUCTS.

     We believe that developing marketing partnerships and strategic alliances
is an important factor in our success in marketing our Video Platform and
Applications and in penetrating new markets for such products. We have recently
started to develop a number of strategic alliances for the marketing and
distribution of our Video Platform and Applications. We cannot assure that we
will be able to successfully develop such partnerships or strategic alliances.
Failure to develop such arrangements may limit our ability to successfully
market and sell our Video Platform and Applications and may have a negative
impact on our business.

                                       13
<PAGE>

WE ARE DEVELOPING NEW VIDEO CONTENT ANALYSIS APPLICATIONS. WE MAY NOT HAVE
SUFFICIENT RESOURCES TO SUCCESSFULLY COMMERCIALIZE SUCH APPLICATIONS.

     We are developing and commercializing new video content analysis
applications that enable real-time detection of security threats. The market for
such video content analysis applications is still in an early phase. As this is
a new opportunity for changing security procedures and transition to proactive
security management, we cannot anticipate the pace in which security
organizations will adopt this technology. Successful positioning of our products
is a critical factor in our ability to maintain growth. New potential entrants
to the market may decide to develop video content analysis capabilities and
compete with us in this emerging opportunity. As a result, we expect to continue
to make significant expenditures on marketing. We cannot assure you that the
market awareness or demand for such new products will grow as rapidly as we
expect, or if at all, that we will successfully develop new products or
introduce new applications for existing products, that such new products and
applications will achieve market acceptance or that the introduction of new
products or technological developments by others will not adversely impact the
demand for our video content analysis applications.

OUR COMINT/DF BUSINESS IS SMALL.

     Another market we serve is the market for communication intelligence and
direction finding (or COMINT/DF) applications utilized by military intelligence
operations. Our COMINT/DF business is small in size, we are considered a niche
player, and are depending on system integrators for the growth of the business.
We cannot assure you the sustainability of this business in the longer term.

OUR LAWFUL INTERCEPTION PRODUCT OFFERINGS BUSINESS IS IN ITS EARLY STAGES.

     Our NiceTrack system for the Lawful Interception marketplace is
particularly designed for the new European Telecommunications Standardization
Institute (or ETSI) standard. The implementation of this standard may be very
slow and the potential of sales may be limited.

THE PACE OF THE HOMELAND SECURITY SPENDING MAY BE SLOWER THAN ANTICIPATED.

     The market for our security solutions in closed circuit television (or
CCTV) continuous recording, public safety and law enforcement is highly
dependent on the spending cycle and spending scope of the US Homeland Security
department as well as local, state and municipal governments and security
organizations in international markets. We cannot be sure that the spending
cycle will materialize and that we will be positioned to benefit from the
potential opportunities.

RISKS RELATED TO OUR ORDINARY SHARES AND ADSS

OUR SHARE PRICE MAY BE VOLATILE AND MAY DECLINE.

     Numerous factors, some of which are beyond our control, may cause the
market price of our ordinary shares or our American Depositary Shares, or ADSs,
each of which represents one ordinary share, to fluctuate significantly. These
factors include, among other things, announcements of technological innovations,
customer orders or new products by us or our competitors, earning releases by us
or our competitors, market conditions in the industry and the general state of
the securities markets, with particular emphasis on the technology and Israeli
sectors of the securities markets.

                                       14
<PAGE>

OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS MAY FLUCTUATE SIGNIFICANTLY
AND MAY CAUSE OUR SHARE PRICE TO BE VOLATILE.

     Our quarterly operating results may be subject to significant fluctuations
due to various factors, including the length of the sale cycles, the timing and
size of orders and shipments to customers, variations in distribution channels,
mix of products, new product introductions, competitive pressures and general
economic conditions. In particular, the COMINT/DF products are long-term
projects that may also affect quarterly results. Because a significant portion
of our overhead consists of fixed costs, our quarterly results may be adversely
impacted if sales fall below management's expectations. In addition, the period
of time from order to delivery of our Audio and Video Platforms and Applications
is short, and therefore our backlog for such products is currently, and is
expected to continue to be, small and substantially unrelated to the level of
sales in subsequent periods. As a result, our results of operations for any
quarter may not necessarily be indicative of results for any future period. Due
to all of the foregoing factors, in some future quarters our sales or operating
results may be below our forecasts and the expectations of public market
analysts or investors. In such event, the market price of our ordinary shares
and ADSs would likely be materially adversely affected.

                                       15
<PAGE>

ITEM 4.   INFORMATION ON THE COMPANY.


GENERAL

     Our legal and commercial name is NICE Systems Ltd. We are a company limited
by shares organized under the laws of the State of Israel. We were originally
incorporated as NICE Neptun Intelligent Computer Engineering Ltd. on September
28, 1986 and renamed NICE-Systems Ltd. on October 14, 1991. Our principal
executive offices are located at 8 Hapnina Street, P.O. Box 690, Ra'anana 43107,
Israel and the telephone number at that location is +972-9-775-3030. Our agent
for service in the United States is our subsidiary, NICE Systems Inc., 301 Route
17 North, Rutherford, New Jersey 07070.


PRODUCTS/MARKETS OVERVIEW

1) VOICE PLATFORMS AND APPLICATIONS

     PRODUCTS

     Our Voice Platforms and Applications include recording, monitoring, quality
management and business performance management solutions which are designed to
protect businesses and customers against risks posed by lost or misinterpreted
voice or data transmissions and capture, evaluate and analyze customer
interactions in order to improve contact center agent performance, business
processes and the customers' experience.

     Voice recorders (or loggers) are systems that capture and record large
volumes of voice data transmitted over multiple telephone or other communication
lines and allow users to retrieve and playback specific communication data.
Traditional voice recorders were based on analog reel-to-reel technology, which
limited an organization's ability to store and retrieve data efficiently, and
which could not interface with digital computer and telecommunication networks.
In the early 1990s, analog reel-to-reel recorders began to be replaced with
analog VHS-based products and, more recently, by digital products, including
those based on magnetic disk, optical disk or digital audio tapes (or DAT).
Organizations' growing needs to record, process and store large amounts of voice
data resulted in the introduction of digitally-based voice recording systems
characterized by increased performance and improved system economics. Digital
multi-channel recording systems enable simultaneous recording and logging of a
large number of channels, while enabling a large number of users to process
voice data simultaneously. Digital systems' advantages over traditional analog
systems include the immediate random access to recorded data, open connectivity
and compact size of both the recording unit and storing and archiving media.
Advanced, industry-standard, digital voice recording systems employing CTI
technologies allow for integration of the recording and retrieval functions with
organizations' computer and telecommunications networks, thereby delivering
maximum business benefits, increased user efficiency, and wider access for a
larger numbers of users. The demand for sophisticated CTI digital voice
recording systems is increasing as a result of the increased demand for digital
recording systems, particularly in the contact center market and the conversion
by the large installed base of analog systems to digital technology,
specifically in the financial institutions, public safety and ATC markets.

                                       16
<PAGE>

     NiceLog, our flagship digital voice recording system, is a computer
telephony integrated multi-channel voice recording and retrieval system. NiceLog
is an open architecture system based on PC architecture and advanced audio
compression technology that performs continuous, reliable recordings of up to
thousands of analog and digital telephone lines, as well as radio channels, and
enables simultaneous access by multiple users. NiceLog can be used either as a
stand-alone unit or as part of a highly expandable and scaleable system
comprised of several seamlessly integrated units. Each NiceLog unit can
simultaneously record, monitor, archive and playback up to 224 channels allowing
for substantial space saving. NiceLog's open architecture provides a wide
variety of connectivity options to computer networks such as Novell/IPX and
TCP/IP using Windows 95, Windows NT, Windows 2000, Windows XP and UNIX operating
systems, and telecommunication interfaces such as T1, E1, ISDN and analog
trunks. The modular design of the NiceLog system makes it a powerful voice
management tool that can be expanded to satisfy customers' needs by integrating
it with additional NiceLog units on the same local area network, or LAN.

     The NiceLog's system administrator software enables the system's supervisor
to configure individual or multiple voice loggers from the central workstation
and to setup passwords for individual users. The supervisor software constantly
monitors the integrity of the system and displays error or warning messages when
storage capacity is low or if there are any other problems with the system. The
voice recorders are activated by commands received from a workstation through a
LAN. NiceLog stores all information on hard disk for immediate retrieval, and on
DAT for long-term archiving, through advanced compression technology. All stored
information can be accessed simultaneously by any number of authorized users
connected to the LAN through decompression of stored data.

     NiceLog`s central storage option can integrate with enterprise storage
networks (SAN or NAS) for long term or medium term voice storage. Central
storage sites can hold the entire voice recording from all the organization's
different sites thus reducing management costs and redundancy. The retrieval
process for voice on the central site is fully automatic.

     NiceLog's playback function can be activated by any authorized user through
a workstation or a standalone PC, connected via a standard network interface.
Easy scanning and subsequent instantaneous random access playback of all
recorded voice communications can be performed by a single or several authorized
users at their desktop with the help of the NiceLog graphical user interface,
which operates under a Windows platform. The playback can be routed directly
through a speaker or via the private automatic branch exchange (PABX) to the
user's phone extension. The playback user interface provides for full playback
control, including advanced features such as random jumps, loops and optional
variable speed reproduction without pitch distortion.

     NiceCLS is an add-on module included in the NiceLog system. NiceCLS is a
CTI server connected to the customer's switch, business data system and other
NiceLog system components. It collects call details such as start and stop
times, extension numbers, caller ID, routing path in the switch, agent
identification, agent group, and customer and transaction identification. This
information is integrated with the recorded voice, forming a comprehensive call
database and enabling additional recording solutions. With this high level of
integration, NiceLog provides

                                       17
<PAGE>

additional advanced solutions, such as selective recording and recording on
demand, and enables calls to be quickly retrieved and analyzed. The
sophisticated indexing of the database enables prompt location and retrieval of
recordings. Free-seating environments, such as contact centers and trading
floors, where the trader or agent may log-in to any telephone station, require
NiceCLS' capabilities for immediate recognition of individual users regardless
of the telephone or channel accessed. NiceCLS also enables cost-effective
trunk-side recording. NiceCLS can be adapted to the customer's needs based on
the host environment and the size and type of database.

     NiceCall Focus is a voice recording system that records up to 32 input
channels and provides up to 4000 hours of on-line voice storage capacity.
NiceCall Focus is the next generation product replacing the NiceCall product.
NiceCall Focus provides organizations that have a relatively small number of
input channels, such as public safety agencies, with a competitively priced yet
technologically advanced digital recording product that offers many of the
connectivity and processing features of the NiceLog. NiceCall Focus is being
targeted primarily at public safety facilities, including 911 emergency centers
and utilities, as well as small bank branches, financial trading sites, and
contact centers.

     NiceUniverse, introduced in February 1998, is a comprehensive quality
management solution used to evaluate agent performance and to raise the level of
customer service in contact centers through advanced voice and desktop screen
recording technologies. The NiceUniverse system provides objective evaluation
tools and helps identify training requirements for contact center agents,
including real-time monitoring for instant access to live customer interactions
and enhanced reporting and administration features. NiceUniverse uses a CTI that
integrates with ACDs. This enables NiceUniverse to monitor and record agent
sessions (voice and screen) on a user-defined schedule and store them in
compressed digital format. Sessions are later retrieved by the reviewers from
their network PCs, and agent performance is graded using customized on-screen
templates. From these templates and other data, NiceUniverse generates detailed
reports, statistics and graphs to help identify training requirements and set
relevant benchmarks for contact center agents.

     Through the acquisition of TCS, NICE provides first responders and air
traffic control organizations with a full range of recording features for voice,
radio and trunked radio, including on-line access to hundreds of hours of
recording for a quick response time, a choice of different types of archiving
media, and a dubbing capability to edit calls on-line for courtroom
presentations. The system enables the organizations to re-construct scenarios,
investigate and improve performance. NICE is a leader in this market and our
products are currently being used in a significant number of air traffic control
facilities, including FAA and NAV Canada, as well as large police,
transportation, emergency services command and control centers.

     The underlying voice recording platforms used in the public safety
marketplace are similar to the products described above. Their primary use is to
record and replay voice conversations and associated data in order to be able to
reconstruct and analyze incidents that have occurred. However, there are some
significant technical differences owing to the need in many cases to capture not
only voice traffic coming into and out of the public service command and control
center, e.g. a 911 center, but also the radio traffic that is occurring between
the command and control center and the field personnel. Hence the technical
interfaces and architecture of the products are often different to those
required for commercial environments.

                                       18
<PAGE>

     The other major difference is that there may be the need to replay and
analyze multiple conversations that occurred in connection with an event in
order to fully analyze it. For example, it may be necessary to replay, in
synchronism, many different radio channels, together with the radio dispatch
conversations, together with the telephone conversations from multiple callers.

     Our public safety products range in size and complexity from small,
single-site single- recorder systems to large, multi-site, multi-recorder
systems integrated with trunked radio and computer-aided dispatch systems. Below
is a description of our public safety products.

     Wordnet is a medium sized recording system and its current Series 3 version
is available with up to 128 channels per unit. Multiple units can be configured
into a larger, integrated system of many hundreds or thousands of channels.
Wordnet has a wide range of analogue and digital interfaces, to the
telecommunications networks that it is recording from and stores the digitized
voice and other data on internal hard disk and optional additional external RAID
hard disk storage systems. Voice recordings and associated data can be archived
for long term retention onto DVD disks or VXA tapes. Wordnet is usually
connected to a LAN to provide access to the system management and replay
applications that run on separate PC servers. Wordnet has a powerful CTI
capability and can be integrated with a wide range of proprietary CTI interfaces
from companies including Aspect, Siemens, Avaya, Damovo, Nortel, Alcatel,
Motorola and BT.

     Mirra is a small recording system that is particularly suited to simple
recording applications in which it can record up to 32 channels of voice traffic
from a wide variety of analogue and digital interfaces. Mirra has been designed
to be simple to install, operate and maintain and has been sold into many local,
city and state public safety organizations that have a single site operation.
Digitized voice and associated data are stored onto DVD disks that provide a
robust and long-term archive medium. Mirra's design avoids using an internal
hard disk for the operating system and consequently it starts-up very rapidly
and avoids the maintenance liabilities associated with hard disks.

     Tienna is a large recorder that is designed to form part of a Renaissance
solution. Renaissance solutions are used when the customer has a complex
requirement typically involving multiple recorders, multiple sites and
dual-redundant components in order to provide very high performance and
resilience. Tienna can provide up to 480 channels per unit and multiple units
can be interconnected to form a system of many thousands of ports. Tienna is
unique in that it provides dynamic channel allocation between the active ports
on the recorder and a greater number of channels on the networks to which it is
connected. This provides a more efficient use of the system's resources than a
permanent 1:1 connection of channels to ports. Tienna contains internal hard
disks for short term storage but relies upon the Renaissance Centralized Mass
Storage Unit (CMSU) for all medium and long term storage and for archiving onto
tapes.

     Renaissance solutions can incorporate combinations of Wordnet and Tienna
recorders as well as the Central Mass Storage Unit (CMSU), Calls Database and
Replay Server. These components operate together in a networked configuration to
provide a complete recording solution and can be fully duplicated in order to
provide very high levels of redundancy and reliability.

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<PAGE>

MARKETS

     The market for digital voice recording, quality monitoring and performance
management products has experienced steady growth in recent years as a result of
the increase in the use of telephones to obtain information, to initiate
business and consumer contacts, to provide services such as banking and
insurance, and to sell products through contact centers.

     Users of our Voice Platforms and Applications, include financial
institutions, such as brokerage and trading houses; contact centers, such as
telemarketing, telebanking and teleinsurance facilities; public safety and
transportation agencies, such as police, fire and ambulance departments; ATC
centers; and intelligence agencies.

     FINANCIAL INSTITUTIONS. Financial institutions conduct a substantial
portion of their business over the telephone and are increasingly relying upon
their ability to record, store and retrieve voice data of transactions in a
timely, reliable and efficient manner. Brokers and dealers record and store
recordings of transactions to provide back-up and verification of such
transactions and to guard against risks posed by lost or misinterpreted voice
communications. Our customers in the financial institutions market include ABN
AMRO Bank, Chase Manhattan Bank, Citibank, Deutsche Bank, Dresdner Bank, First
Chicago NBD, CIBC Oppenheimer, Bank of America, the Sydney Futures Exchange and
many others.

     CONTACT CENTERS. Businesses and other organizations are increasingly using
dedicated centers for processing and managing high volumes of incoming and
outgoing customer telephone traffic. Contact centers have been used extensively
in such fields as credit card and consumer collections, telebanking,
teleinsurance, catalog sales, telemarketing and customer service. In these
contact centers, activities such as placing and receiving telephone calls are
linked to database management computer functions to capture, store and report
relevant customer information. Typically, the contact center is the primary
"hub" within an organization for placing or receiving a large volume of customer
calls. Customer service representatives are the contact center's workforce
responsible for talking with customers about subjects, including reservations,
product information, account information, and problem resolution. As the
importance of the contact center has increased and as more functions and
capabilities have been combined, a parallel industry has emerged. This industry
creates and supports the systems, software and services that are designed to
make these contact centers efficient, effective and well matched to the broader
corporate mission of the enterprise. The contact center market, particularly in
the United States, has been increasingly using continuous and random voice
recording systems to enable storage of the details of telephone orders and other
transactions, supervision of contact center operators and campaigns, and
evaluation of salespersons' efficiency, customer service and training. Users of
the NiceLog system in this market include Addison Lee, Banque Directe, British
Gas, Halifax Direct, The Montana Power Company, Thomas Cook, Vodafone Connect
and Yorkshire Electricity. Users of our NiceUniverse quality management system
include APAC Customer Services, Arch Communications, Boston Communications,
Electric Insurance Company, and TeleTech Holdings.

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<PAGE>

     PUBLIC SAFETY AND EMERGENCY SERVICES. These organizations include police,
fire, ambulance, coastguard, mountain rescue and other similar public and
private bodies that respond to calls for assistance from the public. In most
cases, local, state or federal law requires that all communications traffic be
recorded in order that evidence can be provided in courts of law, and in order
that the public safety body can verify that it is following prescribed processes
and meeting performance standards. Our customers in the public safety market
include: New York Police Department, Los Angeles Police Department, Chicago
Police Department, Indiana State Police, New Jersey State Police, Seattle Fire
Department, US Department of Defense, Hampshire Police - UK and Hertfordshire
Police - UK.

     PUBLIC TRANSPORT AGENCIES. These organizations include rail, bus and mass
transit metro systems. They use large-scale, distributed, fixed and mobile
communications networks in order to provide command and control capabilities
between the mobile units and one or more control rooms. In the event of an
incident, they are required to be able to produce recordings of all associated
communications traffic. Many of these organizations are implementing the latest
generation of digital trunked radio systems according to one of the several
international standards, such as TETRA, Tetrapol or APCO25, and the recording
system is required to interface to these radio systems in order to capture and
identify all radio traffic. Our customers in the public transportation market
include authorities like Singapore Mass Transit Authority and Railtrack - UK.

     AIR TRAFFIC CONTROL. The ATC market is a traditional user of voice
recording systems due to mandatory requirements for the recording of voice
communications and radio transmissions. ATC centers are evaluating the need to
upgrade their voice communications recording and archiving systems by installing
digital voice loggers. NiceLog was selected by the FAA as the voice recording
system to be installed in over 800 ATC centers in the United States. NiceLog and
Wordnet have also been selected by ICAO and other ATC authorities in Austria,
Canada, China, Croatia, Cyprus, Finland, Germany, Hong Kong, Hungary,
Kazakhstan, Iceland, Israel, Japan, the Maldive Islands, the Netherlands,
Norway, Poland, Romania, Switzerland and Turkey.

     INTELLIGENCE AGENCIES. Law enforcement and intelligence agencies collect
large amounts of information in various media for analysis and evaluation,
although only a small portion of that information is valuable. Intelligence
agencies require sophisticated multi media recording systems that enable the
recording, retrieval and processing of the information gathered for purposes of
analysis and evaluation. Users who have installed NiceLog or Wordnet systems,
either as stand alone systems or in combination with other systems, include
intelligence agencies in more than twenty countries.

                                       21
<PAGE>

SALES AND MARKETING, STRATEGIC RELATIONSHIPS

     We market, distribute and service our Voice Platforms and Applications
worldwide primarily through independent dealers that predominantly specialize in
the voice recording market and contact center market, as well as through our own
sales and technical support force in the United States, Canada, Germany, the
United Kingdom, France, Hong Kong and Israel. Most of the sales made by our
sales force are made to our distributors, who then install the systems and
provide day-to-day support to end-users.

     In the Financial Trading segment, we have established marketing, sales and
support arrangements with leading suppliers of complementary products such as
IPC and Etrali, two leading suppliers of telephony switching equipment to
financial institutions and trading rooms. These companies market and distribute
our products to their customers either as stand-alone systems or as integrated
components of their own systems, as follows:

     o    An OEM agreement with IPC Information Systems, Inc. IPC, a leading
          provider of integrated communications solutions to the financial
          services community, has embedded a NiceLog platform customized for IPC
          into IPC's Alliance MX product line and sells this product as an
          integral part of the IPC product.

     o    A marketing agreement with Etrali S.A., a telecom integrator serving
          the financial community. Etrali is the European leader of dealerboard
          systems for trading rooms. Etrali and we have closely integrated our
          products for dealing rooms, which are distributed globally by Etrali
          S.A.

     o    A marketing agreement with BT Syntegra, BT's selling and integration
          company in the trading floor segment.

     In the Contact Center segment, we have also entered into global
distribution agreements with Avaya Inc. (formerly the Enterprise Network Group
of Lucent Technologies), Siemens and Alcatel, as follows:

     o    A marketing partnership with Avaya Inc. (formerly the Enterprise
          Network Group of Lucent Technologies). Avaya is the leading global
          provider of enterprise business communication platforms in voice,
          e-business and data. Avaya is co-selling our Voice Platforms and
          Applications to its customers globally. In addition, and following our
          acquisition of CenterPoint Solutions, Avaya sells our NICE
          ANALYZER(TM) software as part of its software application suite.

     o    A non-exclusive marketing and reseller collaboration with Alcatel,
          Siemens and Philips.

     o    We also participate in an alliance program with Aspect
          Telecommunications Ltd. to ensure the compatibility of our call center
          product line with Aspect's automatic call distribution systems and to
          promote this integration through Aspect's marketing materials.
          Additionally, we participate in an alliance program with Aspect to
          promote the compatibility of the NiceLog system with Aspect's
          automatic call distribution systems through Aspect's marketing
          materials.

                                       22
<PAGE>

     o    We also integrate our products with Siebel Systems and Amdocs (Clarify
          Inc.) in the CRM Space. These integrations with leading CRM providers
          enable our customers to capture and enhance their customers' entire
          experience in the contact center from start to finish and to more
          tightly integrate the functionality delivered by our products into
          their business environment.

     In the public safety market we distribute our products worldwide through a
network of over 100 national and local independent dealers and distributors that
also provide installation and maintenance services.

     o    A marketing agreement with Motorola Inc. for the co-marketing and
          resale of our range of products for the public safety market in North
          American and International markets. This relationship includes the
          appointment of NICE as the only authorized Dimetra Application Partner
          for Motorola's trunked radio solutions.

     o    We also market and sell systems through major regional or global
          partners, such as BT, Siemens, Damovo, Marconi, Nokia and Alcatel.

     In the ATC market, we have been awarded contracts for installation of
NiceLog systems on the basis of bids submitted to ATC authorities by Denro
Systems, Inc. (part of Northrup Grumman, Inc.) and others that incorporated
NiceLog as the voice recording system as part of their proposal. Pursuant to an
agreement dated August 1995 between the FAA and Denro, NiceLog was selected as
the voice recording system to be installed in various ATC centers in the United
States. We provide the NiceLog cards (including software) to Denro and Denro
assembles and installs the NiceLog cards.

2) DIGITAL VIDEO PLATFORMS AND APPLICATIONS

     PRODUCTS

     NiceVision is a state-of-the-art digital video and audio recording system
that provides continuous closed circuit television, or CCTV, recording,
archiving, and debriefing capabilities that meet the needs of today's demanding
security environment, including central banks, Fortune 500 companies,
transportation facilities, prisons, and casinos.

     Our NiceVision product line consists of the NiceVision Pro and the
NiceVision Harmony The NiceVision Pro is a premium solution designed for
high-end applications requiring high- frame rate and/or a large number of
cameras in a campus environment. Typical environments for the Pro are airports,
casinos, ground transportation facilities, etc. The Pro accommodates 96 video
channels in half real time (48 real time) in one single box and can handle
storage devices in the range of tera-bytes. These devices are of two types: disk
based on-line storage (internal drives or RAIDs) and tap-based off-line juke box
devices.

                                       23
<PAGE>

     The NiceVision Harmony is a mid-range digital video recording solution
designated for sites accommodating a large number of cameras yet requiring a
variety of frame rates per channel, spanning from single frames per second to
full frame rate, when required. Typical environments for the Harmony are retail
shops, certain bank facilities, corporate buildings, etc. The Harmony caters for
64 video channels with a preset frame rate shared between groups of channels.
The Harmony can also support large storage devices as the Pro.

MARKETS

     The market for Digital Video platforms, which provide continuous video
surveillance and recording for security protection purposes, is currently
unfolding as CCTV applications shift from traditional analog recorders to
digital recorders. Users of our digital video recording systems include
correctional facilities, banks, telecommunication data-center hosting centers,
retail, casinos, transportation and city centers.

     Customers for our products include the Bank of England, Dell Computer
Corporation, Atlanta Hartsfield International Airport, Toronto Pearson
International Airport, the Helsinki Railway Station - Finland, Casino Cosmopol
in Sweden, the Metropolitan Nashville Airport Authority, correctional facilities
in Brooklyn, New York, and Rush City, Minnesota, Wycombe District Council and
Dulwich College - UK and the Palace Indian Gaming Center of Lemoore, one of
California's largest gaming facilities,.

SALES AND MARKETING, STRATEGIC RELATIONSHIP

     We have a dedicated sales organization for the NiceVision digital video
recording system. We use a network of dealers and security systems integrators
for the sale, installation and support of our solutions. Most of our NiceVision
sales and marketing organization focuses on the U.S. market and we have started
to develop the European market through a team in the U.K. and Israel. In North
America we work through key partners such as Siemens Building Technologies and
Diebold. In EMEA we have recently started to work with Thales Security and
Surveillance group.

3) LAWFUL INTERCEPTION

     PRODUCTS

     In 2001, we introduced NiceTrack(TM), a telecommunications monitoring
system for the government law enforcement markets, that meets the United States
CALEA (Communications Assistance for Law Enforcement Act) requirements according
to the standard defined by TIA (Telecommunication Industry Association), and the
European ETSI (European Telecommunications Standard Institute) standard.
NiceTrack(TM) enables government law enforcement agencies to monitor the calls
of targets, which are intercepted by the service providers and delivered to the
monitoring agencies.

                                       24
<PAGE>

     NiceTrack(TM) is a comprehensive solution for monitoring a wide range of
targets' telecommunications and in-depth analysis of their related meta-data.
NiceTrack(TM) monitors a variety of communications media, including analog
lines, fixed telephony, cellular networks, SMS, fax, data and Internet networks.
Internet monitoring may be implemented as a stand-alone system or may be fully
integrated with the telephony monitoring system, providing a unified monitoring
center.

     NiceTrack(TM), as a lawful interception solution, is fully compliant with
the international standards set by ETSI standard 201671 and the American TIA
(J-std-025).

     MARKET

     The market for telecommunications monitoring systems for government law
enforcement and intelligence agencies has undergone some drastic changes in the
last few years. Standards defining the methods and the protocols of delivery of
the intercepted targets' communications by the service providers to the law
enforcement agencies have been released by the American TIA, the European ETSI
and by other countries. These standards are being adopted by governments through
new regulations which place the responsibility of interception of targets'
traffic on the service providers and requires them to comply with these
standards. Additionally, these new regulations expand the freedom and scope of
monitoring targets' telecommunications.

     SALES AND MARKETING

     We have a dedicated sales and marketing organization for the NiceTrack
system. We market the system worldwide through our direct sales force and
through distributors.

4) COMINT/DF

     PRODUCTS

     We develop, design, manufacture and market COMINT/DF systems, which are
used primarily for spectrum monitoring, signal tracing and direction finding
applications. Our COMINT/DF systems can be installed on a wide range of
platforms, including mobile and fixed ground installations as well as aboard
airplanes and ships. Users of our COMINT/DF systems include government agencies,
primarily intelligence gathering organizations. These systems are tailored to
the specific requirements of users. In addition, our COMINT/DF systems may be
used, in the future, by ATC centers in order to detect the direction of aircraft
and for spectrum surveillance for commercial applications such as locating the
unauthorized use of frequencies.

                                       25
<PAGE>

     Our COMINT/DF principal systems are the CDF 1500 and the CDFS-5000,
powerful spectral surveillance and direction finding systems that operate in the
1.5-1200 MHz frequency range (CDF 1500) and in 0.5 to 3000 MHz frequency range
(CDFS-5000), enabling users to detect, locate and monitor transmitted
communications signals. Our NiceFix COMINT/DF system is specially adapted for
the ATC and VTS (Vessel Traffic Service) markets. We are currently in the final
developing phase of the CDFS-5000 product family, with first deliveries expected
in 2003. This system is based on wide band receiver technology and software
radio digital processing platforms designed to provide a solution for the
communication transmissions.

     Our COMINT/DF systems are usually combined with our voice recording
systems, enabling the monitoring of detected transmissions as well as storage
and retrieval of the transmitted data. As a result, our COMINT/DF systems
provide users with the capability of archiving large volumes of recorded
information and applying sophisticated database management for automatic
retrieval and analysis.

     The COMINT/DF systems can operate either as a stand alone single sensor to
measure direction of arrival, or to locate the transmitting object when using
two or more sensors. This information is stored on the system data base,
enabling retrieval of all relevant data, of transmitted communications. Our
COMINT/DF systems' modular approach, open system architecture and use of
commercial off the shelf, or COTS, elements enable us to cost effectively tailor
the interfaces and other features of the system to address the highly
specialized needs of individual users.

     Our COMINT/DF systems are used by governmental/intelligence agencies in
order to detect and measure the direction of transmission signals. The Nicefix
COMINT/DF system is used by ATC/VTS centers to locate aircraft/vessels by
measuring the direction of the aircraft/vessel communications signal. This data
is then used by the control tower operator to direct the aircraft/vessel. To
date, our COMINT/DF systems are in use by more than ten governments/agencies.

SALES AND MARKETING

     We sell standard systems to systems houses such as Elisra Electronic
Systems Ltd. as well as custom-made systems tailored to the specific needs of
their respective customers. These companies market and distribute our product
primarily to foreign governments and governmental agencies as integrated
components of their sophisticated intelligence systems. Our relationships with
the systems houses allow us to take advantage of their strengths in selling
integrated communication intelligence and electronics systems to governments.

MANUFACTURING AND SOURCE OF SUPPLIES

     Our products are built in accordance with industry standard infrastructure
and are PC compatible. The hardware elements in our products are based primarily
on standard commercial off the shelf components and utilize proprietary in-house
developed circuit cards and algorithms and digital processing techniques and
software. In the fourth quarter of 2002, we started selling "software only"
solutions for screen loggers, based on standard HP and IBM servers.

         Prior to the first quarter of 2002, our manufacturing operations
consisted primarily of final assembly and testing of components and
subassemblies. We manufactured our CTI and NiceVision products in our facility
in Ra'anana, Israel and our COMINT and special NiceLog systems in our facilities
in Ra'anana and Sunnyvale, California.

                                       26
<PAGE>

     During the first quarter of 2002, however, we began implementation of a
contract manufacturing agreement with Flextronics Israel Ltd., a subsidiary of a
global electronics manufacturing services (EMS) company. Under this agreement
Flextronics is providing us with a turnkey manufacturing solution from order
receipt to product shipment including purchasing, manufacturing, testing and
configuration. This agreement covers all of our product lines, including our
voice recording family of products, our video product lines, our upgrade lines
and our spare parts and RMA. We believe this outsourcing agreement provides us
with a number of cost advantages due to Flextronic's large-scale purchasing
power, and greater supply chain flexibility. We completed the transfer to
Flextronics of the production for all our products during the second half of
2002.

     Some of the components have a single approved manufacturer while others
have two or more options for purchasing. In addition, for some of the components
and subassemblies we maintain an inventory to limit the potential for
interruption. We also carry out OEM relationships directly with some of the more
significant manufacturers of our components. Although certain components and
subassemblies we use in our existing products are purchased from a limited
number of suppliers, we believe that we can obtain alternative sources of supply
in the event that such suppliers are unable to meet our requirements in a timely
manner.

     We also have a contract manufacturing agreement entered into by TCS prior
to its acquisition by NICE, with Instem Technologies Ltd, a UK company. Under
this agreement Instem is the exclusive manufacturer of all TCS products. This
manufacturing facility is located in the UK.

     Quality control is conducted at various stages at our manufacturing
outsourcers' facilities and at their subcontractors' facilities. Quality control
for the COMINT DF systems is conducted at our facility. We generate reports to
monitor our operations, including statistical reports that track the performance
of our products from production to installation. This comprehensive data allows
us to trace failure and to perform corrective actions accordingly.

     Our manufacturing operation has qualified for and received the ISO-9002
quality standard for all of our products. Additionally, our COMINT/DF systems
are qualified for and have received the ISO-9001 quality standard.

SERVICE AND SUPPORT

     We have focused on building a strong service and support organization for
all our systems. Our dealers, as well as other telecommunications companies that
market our products, are primarily responsible for supporting the day-to-day
requirements of the end-users, while we provide technical support to such
dealers and partners. In order to support our direct customers and partners, we
established three regional support centers, the largest of which in Denver,
Colorado, to support our U.S. customers and partners, as well as one in Hong
Kong to support APAC customers, dealers and partners, and one in the UK to
support EMEA customers, dealers

                                       27
<PAGE>

and partners. We maintain at our headquarters a staff of highly skilled customer
service engineers that offer support to our dealers or partners that offer
direct support to our customers. These service engineers, as well as additional
service engineers located in our offices in the United States, EMEA and APAC,
provide first class field services and support worldwide. We maintain regular
training sessions for our dealers and installation support as well.

     In 2002, we significantly increased the revenues from services while
successfully integrating the TCS services group. We now have a consolidated
support group delivering services to both NICE and TCS business partners and
customers.

     Our systems are generally sold with a warranty for repairs of hardware and
software defects and malfunctions, the term of which is usually one year after
shipment. Longer warranty periods are applicable to sales in certain
international and government markets. Extended warranty and service coverage is
provided in certain instances and is usually made available to customers through
our distributors on a contractual basis for an additional charge. Our customers
may purchase a renewable maintenance agreement from our dealers or directly from
us. The maintenance agreements generally provide for maintenance, upgrades of
standard system software and on-site repair or replacement.

     Due to the nature of the end-user market for our COMINT/DF systems and
their marketing channels, we are not ordinarily required to provide for their
service and support. Such end-users normally maintain their COMINT/DF systems
with their own personnel.

     For our telecommunications monitoring systems, we provide first and second
tier service and support either directly using our support organization or
indirectly through local companies working closely with the law enforcement
agencies.

RESEARCH AND DEVELOPMENT

     We believe that the development of new products and the enhancement of
existing products are essential to our future success. Therefore, we intend to
continue to devote substantial resources to research and new product
development, and to continuously improve our systems and design processes in
order to reduce the cost of our products. Our research and development efforts
have been financed through our internal funds and programs sponsored through the
Government of Israel. We believe our research and development effort has been an
important factor in establishing and maintaining our competitive position. Gross
expenditures on research and development in 2000, 2001 and 2002 were
approximately $25.4 million, $26.0 million and $24.7 million, respectively, of
which approximately $1.2 million, $1.4 million and $2.2 million, respectively,
were derived from third-party funding, and $4.7 million, $5.4 million and $4.6
million, respectively, were capitalized software development costs.

     As of January 1, 1999, we have been qualified to participate in an Israeli
government-aided consortium to develop generic technology relevant to the
development of our wide band products, from which we received $240,000 in 1999.
In 2000, we were qualified to participate in three additional Israeli
government-aided consortiums for the development of generic technology related
to our products. In 2002, we were qualified to participate in two additional
Israeli government-aided consortiums for the development of generic technology
related to our products. In 2000, 2001, 2002 we received a total of $1,330,000,
$1,318,000 and $1,925,000, respectively, and we anticipate receiving
approximately $1,600,000 in 2003 from these plans. The generic technology plans
are not subject to royalty payments.

                                       28
<PAGE>

     We are eligible to receive grants, constituting up to 66% of certain
research and development expenses, from the Government of Israel, through the
Office of the Chief Scientist, or OCS, for the development of products intended
for export. Under the terms of the OCS participation, a royalty of 3% to 5% of
the net sales of products developed in, and related services resulting from, a
project funded by OCS generally is required to be paid beginning with the
commencement of sales of such products and ending when 100% to 150% of the grant
is repaid in New Israeli Shekels, or NIS, linked to the dollar plus Libor
interest. In 1999, 2000, 2001 and 2002, we incurred royalties on sales of such
products in the amounts of approximately $395,000, $227,000, $4,000 and $0,
respectively. As of May 31, 2002, we have no further royalty obligations to the
OCS. Terms of Israeli Government participations also require that the research
and development be conducted by the applicant for the grant as specified in the
application and that the manufacturing of products developed with government
grants be performed in Israel, unless a special approval has been granted.
Separate Israeli Government consent is required to transfer to third parties
technologies developed through projects in which the government participates.
Such restrictions, however, do not apply to exports from Israel of products
developed with such technologies. From time to time the Government of Israel has
revised its policies regarding the availability of grants, and there can be no
assurance that the Government's support of research and development will
continue.

INTELLECTUAL PROPERTY

         We currently rely on a combination of trade secret, patent, copyright
and trademark law, together with non-disclosure and non-compete agreements, to
establish and/or protect the technology used in our systems. We hold the
following seven issued U.S. Patents:

     o    No. 5,861,959 titled "Facsimile Long Term Storage and Retrieval
          System"
     o    No. 5,937,029 titled "Data Logging System Employing M[N + 1]
          Redundancy"
     o    No. 6,122,665 titled "Communication Management System"
     o    No. 6,046,824 titled "CIF - Facsimile Long Term Storage and Retrieval
          System"
     o    No. 6,330,025 titled "Digital Video Logging System"
     o    No.6,542,602 titled "Telephone Call Monitoring System"
     o    No. 5,353,168 titled "Recording and Reproduction System using Time
          Division Multiplexing.

     We currently have three other patents issued in additional countries and 46
patent applications pending in the U.S and other countries. We believe that the
improvement of existing products, and the development of new products are
important in establishing and maintaining a competitive advantage. We believe
that the value of our products is dependent upon our proprietary software and
hardware continuing to be "trade secrets" or subject to copyright protection. We
generally enter into non-disclosure and non-compete agreements with our
employees and subcontractors. However, there can be no assurance that such
measures will protect our technology, or that others will not develop a similar
technology or use technology in products competitive with those offered by us.
Although we believe that our products do not infringe upon the proprietary
rights of third parties, there can be no assurance that one or more third
parties will not make a contrary claim or that we will be successful in
defending such claim.

                                       29
<PAGE>

     In June 2000, Dictaphone Corporation, one of our competitors, filed a
patent infringement claim relating to certain technology embedded in some of our
products. The claim is for damages for past infringement and enjoinment of any
continued infringement of Dictaphone patents. In the court's discretion, the
damages may be trebled and attorney fees awarded. As a result we might be forced
to pay significant damages and licensing fees, modify our business practices or
even be enjoined from conducting a significant part of our U.S. business. Any
such results could materially harm our business. We believe, however, that we
have a valid defense to this claim and are vigorously defending it. We have
received notification from our insurance company indicating that the claim is
not covered by our insurance policy; however, our insurance company has agreed
to reimburse for us all legal expenses that we are expending in defense of the
claim while reserving its final decision on this matter until the final outcome
of the litigation. The discovery period is closed, dispositive motions have been
filed with the Court, and we are awaiting the Court's decisions on these motions
as well as scheduling for trial.

     In April 2002, we received a letter from Dictaphone stating that several of
our products were using technology protected by additional Dictaphone patents
and offering us a licensing arrangement for these patents. We believe that none
of our products infringe upon those patents.

     From time to time, we receive "cease and desist" letters claiming patent
infringements, however, no formal claims or other actions have been filed with
respect to such letters. We believe that none of these has merit. We cannot
assure you, however, that we will be successful in defending the Dictaphone
infringement claim or other claims, or that infringement claims or other claims,
if asserted, will not have a material adverse effect on our business, financial
condition and results of operations. Defending the infringement claim or other
claims could involve substantial costs and diversion of management resources. In
addition, to the extent we are not successful in defending such claims, we may
be subject to injunctions with respect to the use or sale of certain of our
products or to liabilities for damages and may be required to obtain licenses
which may not be available on reasonable terms.

     We own the following trademarks: 3600 View, Agent@home, Executive Connect,
Executive Insight, Experience Your Customer, Investigator, Lasting Loyalty,
Listen Learn Lead, MEGACORDER, Mirra, My Universe, NICE, NiceAdvantage, NICE
Analyzer, NiceCall, NiceCLS, NiceCMS, NICE Feedback, NiceFix, NiceGuard, NICE
Learning, NICE Link, NiceLog, NICE Playback Organizer, Renaissance, ScreenSense,
NiceScreen, NiceSoft, NICE Storage Center, NiceTrack, NiceUniverse, NiceUniverse
LIVE, NiceVision, NiceVision Harmony, NiceVision Mobile, NiceVision Pro,
NiceVision Virtual, NiceWatch, Renaissance, Secure Your Vision, Tienna, and
Wordnet are trademarks of ours. Applications to register certain of these marks
have been filed in certain countries, including Australia, Brazil, the European
Union, Germany, Great Britain, Israel, Japan, Mexico, Argentina and the United
States. Some of such applications have matured to registrations.

                                       30
<PAGE>

REGULATION

     The export of certain defense products from Israel, such as our COMINT/DF
and NiceTrack(TM) products, requires a permit from the Defense Sales and Exports
branch of the Israeli Ministry of Defense (SIBAT). In 2002, approximately 6.3%
of our sales were subject to such permit requirements. Additionally, certain
components of our COMINT/DF systems are manufactured in the United States,
requiring us to obtain a license from the United States government for the sale
of such products. To date, we have encountered no difficulties in obtaining such
licenses.

COMPETITION

     The market for our Voice Platforms and Applications is highly competitive
and includes numerous products offering a broad range of features and
capacities. As the market is still developing, we anticipate that a number of
our existing and potential competitors will be introducing new and enhanced
products. Some of our competitors in the digital voice recording and quality
management for contact center agent monitoring businesses include Dictaphone
Corporation, Witness Systems ,Inc., Teknekron Infoswitch Corporation (now called
e-talk), and Verint Systems Inc. (formerly Comverse Infosys), a subsidiary of
Comverse Technology Inc.

     We believe that competition in the sale of our Voice Platforms and
Applications is based on a number of factors, including system performance and
reliability, the ability to integrate with a variety of other computer and
communications systems, marketing and distribution capacity, price and service
and support. We believe that the wide range of features provided by the NiceLog
system and related applications, their wide connectivity and compatibility with
telephone and computer networks and their ease of use create a competitive
advantage to the NiceLog and such related applications compared to other similar
systems currently being offered on the market.

     There are several small competitors who have products that compete with our
Video Platform and Applications, however our main competitors in this market are
Loronix Information Systems, Inc (a wholly owned subsidiary of Verint Systems
Inc.), Lennel and Dallmeier.

     In the public safety market, there are a number of competitors providing
solutions, including Mercom Inc, CVDS Inc, Voiceprint Inc, Dictaphone
Corporation and Witness Systems, Inc.

     We are aware of a limited number of manufacturers of systems for defense
applications that compete with our COMINT/DF systems such as Rhode & Schwartz,
Thales, Tadiran Ltd. and Elta Electronic Industries Ltd. We believe that our
COMINT/DF systems offer high performance for relatively moderate price and
therefore have a competitive advantage over other COMINT/DF systems, which may
require large expenditures by the customer.

                                       31
<PAGE>

     There are a number of competitors in the telecommunications monitoring
market, having products competing with our NiceTrack(TM) system, the major ones
being Verint Systems Inc., Ectel Ltd., and ETI. We believe that our solution
offers innovations that provide the law enforcement agencies the tools and
capabilities they require to meet the challenges of today's advanced
telecommunications world, as well as being price competitive.

ORGANIZATIONAL STRUCTURE

     The following is a list of all of our significant subsidiaries, including
the name, country of incorporation or residence, and the proportion of our
ownership interest in each.


                                           COUNTRY OF           PERCENTAGE OF
                                        INCORPORATION OR         OWNERSHIP
NAME OF SUBSIDIARY                          RESIDENCE             INTEREST
- -------------------------------------  ------------------      ---------------
NICE Systems, Inc.                        United States             100%
NICE Systems GmbH                            Germany                100%
NICE Systems Canada Ltd.                     Canada                 100%
NICE CTI Systems UK Ltd.                 United Kingdom             100%
STS Software Systems (1993) Ltd.*            Israel                 100%
NICE APAC Ltd.                              Hong Kong               100%
NiceEye BV*                                Netherlands              100%
NiceEye Ltd.*                                Israel                 100%
Nice Systems SARL                            France                 100%
Racal Recorders Ltd                      United Kingdom             100%

* Inactive

PROPERTY AND EQUIPMENT

     Our executive offices and engineering, research and development operations
are located in Ra'anana, Israel, where we occupy approximately 126,000 square
feet of space, pursuant to a lease expiring in 2008. This lease may be
terminated by us at any time from the year 2003, subject to certain conditions.
The annual rent and maintenance fee for the facility is approximately $2.8
million linked to the changes in the U.S. consumer price index. We have various
offices and other facilities in North America and in several other countries, as
described below.

     Our North American facilities consist of:

     o    Our North American headquarters in Rutherford, New Jersey, which
          occupy approximately 25,000 square feet with a monthly rental of
          approximately $57,000 We also have a warehouse facility in Lyndhurst,
          New Jersey, which occupies approximately 6,000 square feet, with a
          monthly rental of approximately $5,000;

                                       32
<PAGE>

     o    Our office in San Diego, California, which occupies approximately
          6,250 square feet with a monthly rental of approximately $17,500.

     o    Our office in Chicago, Illinois, which occupies approximately 3,000
          square feet with a monthly rental of approximately $4,500;

     o    Our office in Denver, Colorado, which occupies approximately 42,000
          square feet with a monthly rental of approximately $78,000;

     o    Our office in New York City, New York, which occupies approximately
          4,300 square feet with a monthly rental of approximately $10,000.

     Our international facilities consist of:

     o    Our office in Germany, which occupies approximately 3,000 square feet
          with a monthly rental of approximately $3,200;

     o    Our office in London, which occupies approximately 1,430 square feet,
          with a monthly rental of approximately $16,000; and

     o    Our office in Southampton which occupies approximately 34,249 square
          feet ,with a monthly rental of approximately $53,500.

     o    Our office in Hong Kong, which occupies approximately 3,100 square
          feet, with a monthly rental of approximately $10,000.

     o    Our office in France which occupies approximately 1,894 square feet,
          with a monthly rental of approximately $4,700

     We believe that our existing facilities are adequate to meet our current
and foreseeable needs.

                                       33
<PAGE>

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS


     We may from time to time make written or oral forward-looking statements,
including in filings with the United States Securities and Exchange Commission
("SEC"), in reports to shareholders and in press releases and investor webcasts.
You can identify these forward-looking statements by use of words such as
"strategy", "expects", "continues", "plans", "anticipates", "believes", "will",
"estimates", "intends", "projects", "goals", "targets", and other words of
similar meaning. You can also identify them by the fact that they do not relate
strictly to historical or current facts.

     We cannot assure you that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and inaccurate
assumptions. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements and whether to invest
or remain invested in NICE Systems Ltd.'s securities. The forward-looking
statements relate to, among other things: operating results; anticipated cash
flows; gross margins; adequacy of resources to fund operations; our ability to
maintain our average selling prices despite the aggressive marketing and pricing
strategies of our competitors; our ability to maintain and develop profitable
relationships with our key distribution partners, one of which constitutes more
than 20% of our revenues, and the financial strength of our key distribution
partners.

     In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we are identifying important factors that,
individually or in the aggregate, could cause actual results and outcomes to
differ materially from those contained in any forward-looking statements made by
us; any such statement is qualified by reference to the following cautionary
statements. Please read the section below entitled "Factors That May Affect
Future Results" to review conditions that we believe could cause actual results
to differ materially from those contemplated by the forward-looking statements.
You should understand that it is not possible to predict or identify all risk
factors. Consequently, you should not consider the following to be a complete
discussion of all potential risks or uncertainties. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect our view
only as of the date of this report. Except as required by law, we undertake no
obligation to update these forward-looking statements to reflect future events
or circumstances or the occurrence of unanticipated events.

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and the related notes and other financial information
included elsewhere in this annual report.

OVERVIEW

     We develop, market and support integrated, scalable multimedia digital
recording platforms, enhanced software applications and related professional
services. These solutions capture and analyze unstructured (non-transaction)
data, and convert it into actionable knowledge for business and security
performance management applications. Our solutions capture multiple forms of
interaction, including voice, fax, email, web chat, radio, and video
transmissions over wireline, wireless, packet telephony, terrestrial trunk radio
and data networks. The markets from which we currently derive the majority of
our revenues and expect to continue to do so in the future are highly
competitive.

                                       34
<PAGE>

     Our products are based on two types of recording platforms - audio and
video - and are used primarily in contact centers, trading floors, public safety
organizations, transportation, corporate security, gaming and correctional
facilities as well as various government and intelligence agencies.

     Our development efforts for our recording platforms are aimed at addressing
several trends we see developing in the industry. The trend towards the
proliferation of voice over IP-based networks is leading to a greater
requirement for VOIP recording capabilities in financial trading, contact
centers and public safety environments. The continued trend towards replacing
analog video recording with digital video recording is leading to the need for
network applications in the video recording area.

     We also see the continuation of a trend towards requirements for multimedia
recording capabilities, particularly in contact centers (voice, fax, email,
chat, screen) and public safety (voice, radio, video, data) markets. We are
beginning to see this same trend developing in the financial trading sector, and
we expect some Homeland Security initiatives in areas such as border control,
critical infrastructure security, first responder communications and lawful
interception to require multimedia capture platforms as well.

     Our software applications enable our customers to capture, store, retrieve
and analyze unstructured data (multimedia interactions) and combine them with
data from other systems to create actionable knowledge that can be distributed
via reports and alerts to all relevant parties to improve performance.

     There is growing demand from our customers for software applications that
will leverage the wealth of unstructured data captured by the recording platform
to improve overall performance. In turn, as these enhanced software applications
are being added, customers are considering our systems "mission critical". We
see an opportunity for more content analysis applications in contact centers for
quality monitoring and contact center management as well as for enterprise-wide
process improvement and business performance management. We see a trend towards
more software applications in financial trading environment for compliance
monitoring and dispute management to improve business performance. We see
similar trends happening in digital video recording. We expect video content
analysis applications to become increasingly important to building, campus, city
center, and infrastructure perimeter security, loss prevention in casinos,
retail and warehousing, as well as various homeland security applications to
enable proactive security management.

     We expect to see an increase in the demand for VOIP recording products,
networked video security solutions, and multimedia recording solutions as well
as to increase the proportion of software in our product revenue mix and
gradually increase the amount of professional services and maintenance revenue.

                                       35
<PAGE>

     Our products are sold primarily through a global network of distributors,
system integrators and strategic partners; a portion of product sales and most
services are sold directly to end-users. One distributor accounted for
approximately 22%, 12%, and 19% of revenues in 2002, 2001 and 2000,
respectively.

ACQUISITIONS

     We have consummated three acquisitions during the past three years. These
acquisitions were accounted for as purchases, and, accordingly, the purchase
price for each acquisition was allocated to the assets acquired and liabilities
assumed based on their respective fair values. The results of operations related
to each acquisition are included in our consolidated statement of operations
from the date of acquisition. The following are details for each of these
acquisitions:

     o    In November 2002, we consummated an agreement to acquire certain
          assets and liabilities of Thales Contact Solutions (or TCS), a
          developer of customer-facing technology for public safety, financial
          trading and customer contact centers, based in the United Kingdom. TCS
          was a unit of Thales Group, one of Europe's premier electronics
          companies. In connection with the acquisition, we paid an initial
          $29.9 million in cash and issued 2,187,500 ordinary shares to Thales
          Group at a fair market value of $18.1 million calculated at the date
          of closing. As a result, Thales Group holds approximately 14% of the
          Company's shares and two Thales executives were elected to the Board
          of Directors of NICE.

          Under the terms of the agreement, the cash portion of the purchase
          price was subject to downward adjustment based on the value of net
          assets at closing and the full year 2002 sales of TCS. Based on the
          actual value of net assets acquired and 2002 sales of TCS, we reduced
          the cash portion of the purchase price as of December 31, 2002 by
          $12.8 million. This amount is presented on our balance sheet as a
          Related Party Receivable. Thus, the adjusted purchase price paid,
          including $4.5 million of capitalized acquisition costs, was recorded
          as $39.7 million. Of the $12.8 million adjustment referred to above,
          Thales paid us $6.6 million in March 2003, and pending agreement on
          the actual value of net assets acquired, we expect to recover the
          outstanding balance during 2003. Should we and Thales not reach
          agreement on the net asset value, the matter will be submitted to
          binding arbitration in accordance with the terms of the acquisition
          agreement.

          Also under the terms of the agreement, contingent cash payments of up
          to $10 million in 2003, $7.5 million in 2004, and $7.5 million in 2005
          would be due if certain financial performance criteria are met as part
          of a three-year earn-out provision related to the sale of a particular
          product in 2002 through 2004. The relevant criteria for 2002 were not
          met and therefore no contingent payment in respect of 2002 was
          recorded. Should any contingent payments be made under the agreement
          in the future, the additional consideration when determinable will
          increase the purchase price and accordingly additional goodwill will
          be recorded.

                                       36
<PAGE>

          In the fourth quarter of 2002, we recorded a current liability of $2.8
          million and a long-term liability of $13.5 million reflecting
          obligations under a long-term contract assumed by NICE in the TCS
          acquisition. We have entered into negotiations to amend this contract
          but there can be no assurance that we will be successful in these
          negotiations.

     o    On December 5, 2000, we completed the acquisition of certain assets
          and liabilities of Stevens Communications Inc. (SCI). SCI is a systems
          distributor, whose activities included the promotion, distribution,
          installation and maintenance of our audio recording products and
          related software applications in North America. We paid $7.0 million
          in cash and issued 426,745 ADSs of which 186,818 were deemed target
          shares contingent upon the achievement of certain objectives and
          events through 2002 and 38,914 ADSs were allotted for the benefit of
          certain SCI employees subject to vesting based on continued employment
          with the Company. The contingent target shares were released to SCI
          upon agreement as to the achievement of the determined objectives.

          In October 2001, we entered into a final settlement agreement with SCI
          addressing a dispute with SCI regarding the fair value of the working
          capital acquired. The terms of the final settlement resulted in a
          charge to Other Expense, Net of $4.4 million representing settlement
          of disputed items of $3.6 million and obligations for future
          consulting services, which were no longer of value to us.

     o    In April 2000, we acquired all of the outstanding capital stock of
          Centerpoint Solutions Inc. (CPS) for $3 million in cash and the
          issuance of 200,000 ADSs of NICE of which 50,000 were deemed target
          shares contingent upon the achievement of certain objectives, which
          were not met. CPS is a developer of internet-based applications for
          statistical monitoring, digital recording and automatic customer
          surveys for contact centers.

          In November 2002, we entered into a settlement agreement with Doug
          Chapiewski, the sole shareholder of CPS, in respect of allegations of
          misrepresentation, breach of contract and securities fraud in
          connection with the acquisition of CPS. The terms of the settlement
          agreement, which included 50,000 shares, resulted in a charge to Other
          Expense, Net of $3.5 million.

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States ("US GAAP"). Our significant accounting principles are presented
within Note 2 to our Consolidated Financial Statements. While all the accounting
policies impact the financial statements, certain policies may be viewed to be
critical. These policies are those that are both most important to the portrayal
of our financial condition and results of operations and require our
management's most difficult, subjective and complex judgments and estimates.
Actual results could differ from those estimates.

                                       37
<PAGE>

     Management believes that the significant accounting policies which affect
its more significant judgments and estimates used in the preparation of the
consolidated financial statements and are the most critical to aid in fully
understanding and evaluating our reported results include the following:

     o    Revenue recognition
     o    Allowance for doubtful accounts
     o    Inventory valuation
     o    Impairment of long-lived assets
     o    Deferred income taxes
     o    Contingencies
     o    Restructuring expenses

     REVENUES. We derive our revenue primarily from two sources: product
revenues, which include hardware and software, and service revenues, which
include, support and maintenance, installation, consulting and training revenue.
Revenue related to sales of our products is generally recognized when persuasive
evidence of an agreement exists; the product has been delivered and title and
risk of loss have passed to the buyer; the sales price is fixed and
determinable, no further obligations exist, and collectibility is probable.
Sales agreements with specific acceptance terms are not recognized until the
customer has confirmed that the product or service has been accepted.

     Revenues from fixed-price contracts that require significant customization
are recognized using the percentage-of-completion method generally on the basis
of value added and results achieved out of the completeness of the product as a
whole.

     Revenues from maintenance and professional services are recognized ratably
over the contract period or as services are performed.

     When transactions involve multiple elements, revenue is allocated to the
elements based on Vendor Specific Objective Evidence ("VSOE") of the relative
fair values of each element in the arrangement, according to the residual
method. Our VSOE used to allocate the sales price to support services and
maintenance is based on the renewal price.

     To assess the probability of collection for revenue recognition, we have an
established credit policy that determines, by way of mathematical formulae based
on the customers' financial statements and payment history, the level of open
account that is deemed probably collectible for each customer. These credit
limits are reviewed and revised periodically on the basis of new customer
financial statement information and payment performance.

                                       38
<PAGE>

     We record a provision for estimated sales returns and allowances on product
sales in the same period as the related revenues are recorded. We base these
estimates on the historical sales returns ratio and other known factors. Actual
returns could be different from our estimates and current provisions for sales
returns and allowances may need to be increased.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS. We evaluate the collectibility of our
accounts receivable based on a combination of factors. In circumstances where we
are aware of a specific customer's inability to meet its financial obligations
to us, we record a specific allowance against amounts due to reduce the net
recognized receivable to the amount we reasonably believe will be collected. For
all other customers, we recognize allowances for doubtful accounts based on the
length of time the receivables are past due. Insured balances are not reserved.
If the financial condition of one of our significant customers or our customers
in general should deteriorate, our revenue growth may be limited and additional
allowances may be required.

     INVENTORY VALUATION. At each balance sheet date, we evaluate our inventory
balance for excess quantities and obsolescence. This evaluation includes
analyses of sales levels by product line and projections of future demand. In
addition, we write off inventories that are considered obsolete. Remaining
inventory balances are adjusted to the lower of cost or market value. If future
demand or market conditions are less favorable than our projections, additional
inventory write-downs may be required and would be reflected in cost of sales in
the period the revision is made.

     During 2002 we completed the outsourcing of the manufacture of our audio
and video product platforms. Under this arrangement, we take ownership of
inventories at the conclusion of the manufacturing process, such inventories
representing finished goods or spare parts. As we largely manufacture to order,
we do not tend to accumulate finished goods. We are, however, liable to purchase
above a certain level, which is based on historical level of orders to the
contract manufacturer, excess raw material and subassembly inventories from the
contract manufacturer deemed obsolete or slow-moving. We monitor the levels of
the contract manufacturer's relevant inventories periodically and, if required,
will write-off such deemed excess or obsolete inventory.

     IMPAIRMENT OF LONG-LIVED ASSETS. Our long-lived assets include property and
equipment, long term investments, goodwill and other intangible assets. The fair
value of the long-term investments is dependent upon the performance of the
companies in which we have invested. In assessing potential impairment of these
investments, we consider this factor as well as the forecast financial
performance of the investees and other pertinent information. We record an
investment impairment charge when we believe that the investment has experienced
a decline in value that is other than temporary. During 2002, we recognized $229
thousand of impairment losses related to our long-term investments. As of
December 31, 2002, the carrying value of the Company's long-term investments was
$1.2 million.

     In assessing the recoverability of our property and equipment, goodwill and
other intangible assets, we must make assumptions regarding the estimated future
cash flows and other factors to determine the fair value of the respective
assets. If these estimates or their related assumptions change in the future, we
may be required to record impairment charges for these assets.

                                       39
<PAGE>

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 142
"Goodwill and Other Intangible Assets". SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired in a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives will be amortized and that goodwill and intangible
assets with indefinite lives will not be amortized, but rather will be tested at
least annually for impairment. We adopted SFAS No. 142 beginning January 1,
2002. Upon adoption of SFAS No. 142, we discontinued the amortization of
recorded goodwill, which was approximately $3.4 million on an annual basis at
that time. We performed an impairment test of our goodwill as of January 1, 2002
under the transitional provisions of SFAS No. 142; our test did not indicate an
impairment of goodwill. We confirmed that we have only one reporting unit (the
Company) to which we allocated all recorded goodwill, as well as all assets and
liabilities.

     By October 1, 2002, our stock price had declined significantly from January
1, 2002, at which point our market capitalization, based on our stock price, was
below book value. The price of our ADSs on January 2, 2002 was $17.04 per ADS
and declined to $8.47 per ADS on October 1, 2002. We determined the fair value
of the Company based on relative market multiples for comparable businesses and
a discounted cash flow model. This evaluation indicated that an impairment might
exist. We then performed Step 2 under SFAS No. 142 in which the amount of the
impairment loss, if any, must be measured. Four categories of intangible assets
were identified as being separable from goodwill in accordance with SFAS No.
141. These included: trade names; an in-place distribution network; technology
based intangible assets and maintenance contracts. In valuing the NICE trade
name a relief from royalty method was used. Under this method, the value of a
trade name reflects the savings realized by owning the trade name. The value of
the intangible asset under the relief from royalty method is dependent upon the
following factors: the selected royalty rate, the revenues expected to be
generated from the underlying intellectual property, the discount rate and the
expected life of the intellectual property. The value of our distribution
network was determined through the use of the cost approach. Using this method,
the value of the distribution network is estimated as the after-tax direct costs
that a potential acquirer would avoid spending in recreating a similar
functional distribution network. The value of the intangible asset under the
cost method is dependent upon the estimated direct cost of establishing a new
distributor relationship. Qualifying technology-based intangible assets consist
of current and core technology and technologies that were under development at
the valuation date. The current and core technology was valued using a
derivation of the income approach, namely the excess earnings method. This
method is used to analyze the earnings contribution of an intangible asset.
Under this method, the excess earnings that an intangible asset generates are
calculated over the intangible asset's expected life and discounted to the
present to calculate the fair value of the intangible asset. Excess earnings are
defined as the residual earnings after providing for appropriate returns on the
other identified contributing assets. The value under the excess earnings method
is dependent upon the following factors: the expected revenues generated by the
intangible asset, the expected after-tax earnings on those revenues, the charges
(or returns) required on other contributing assets and the discount rate. Our
maintenance contracts, which are intangible assets under the contractual-legal
criterion of SFAS No. 141, were valued using the excess earnings method. In
determining the applicable discount rate to be used to estimate the fair value
of our net assets, we calculated a market-derived rate based on the estimated
weighted average cost of capital for the Company. In determining the cost of
equity for the Company, we used a standard methodology based on the capital
asset pricing model and analyzed selected guideline companies, industry data and
factors specific to NICE. We expect to use a similar decision process in the
future

                                       40
<PAGE>

     Following these analyses, we compared the carrying amount of goodwill to
the implied fair value of the goodwill and determined that an impairment loss
existed. A non-cash charge totaling $28.3 million was recorded in the fourth
quarter of 2002 to write down goodwill to its fair value under the caption
"Goodwill impairment". This impairment is primarily attributable to the change
in evaluation criteria for goodwill from an undiscounted cash flow approach,
which was previously used under the guidance in Accounting Principles Board
Opinion No. 17 INTANGIBLE ASSETS, to the fair value approach stipulated in SFAS
No.142. The valuation of long-lived assets requires significant estimates and
assumptions. These estimates contain management's best estimates, using
appropriate and customary assumptions and projections at the time. If different
estimates or projections were used, it is reasonably possible that our analysis
would have generated materially different results.

     DEFERRED INCOME TAXES. We record income taxes using the asset and liability
approach. Deferred income tax assets and liabilities are recognized for future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases, and net operating loss and tax credit carryforwards. Our financial
statements contain fully reserved tax assets which have arisen as a result of
net operating losses, primarily incurred in 2001 and 2002, as well as other
temporary differences between book and tax accounting. Significant management
judgment is required in determining our provision for income taxes, our deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. We have considered future taxable income, prudent and
feasible tax planning strategies and other available evidence in determining the
need for a valuation allowance. We evaluate all of these factors to determine
whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. As a result of significant net operating
losses incurred in 2001 and 2002, anticipated additional net operating losses
for the first quarter of 2003 and uncertainty as to the extent and timing of
profitability in future periods, we have continued to record a full valuation
allowance, which was approximately $14.8 million as of December 31, 2002. The
establishment and amount of the valuation allowance requires significant
estimates and judgment and can materially affect our results of operations. If
the realization of deferred tax assets in the future is considered more likely
than not, an adjustment to the deferred tax assets would increase net income in
the period such determination was made.

     Our effective tax rate may vary from period to period based on changes in
estimated taxable income or loss, changes to the valuation allowance, changes to
state or foreign tax laws, future expansion into geographic areas with varying
country, state and local income tax rates, deductibility of certain costs and
expenses by jurisdiction and as a result of acquisitions, divestitures and
reorganizations.

                                       41
<PAGE>

     CONTINGENCIES. From time to time, we are defendant or plaintiff in various
legal actions, which arise in the normal course of business. We are also a
defendant in an intellectual property infringement action. We are required to
assess the likelihood of any adverse judgments or outcomes to these matters as
well as potential ranges of probable losses. A determination of the amount of
reserves required for these contingencies, if any, which would be charged to
earnings, is made after careful and considered analysis of each individual
action together with our legal advisors. The required reserves may change in the
future due to new developments in each matter or changes in circumstances, such
as a change in settlement strategy. A change in the required reserves would
affect our earnings in the period the change is made.

     RESTRUCTURING. We established exit plans for each of the restructuring
activities which took place in 2001 and 2002. In early 2001, with mounting
evidence of an economic slowdown in the information technology and
telecommunications sectors as well as changing business dynamics, we conducted a
comprehensive review of our strategy, products, organization and infrastructure.
This review culminated in the restructuring of our global operations, including
the reduction of approximately 340 of our 1,110 employees, consolidation of our
field facilities in North America, expansion of our local presence in Europe and
Asia, and various other actions aimed at focusing on our core markets, products
and competencies. We accounted for the 2001 plan in accordance with EITF Issue
No. 94-3 "Liability Recognition for Certain Employee Benefits and Other Costs to
Exit an Activity (including Certain Costs incurred in a Restructuring)". Under
EITF 94-3, an entity recognized a liability for an exit cost on the date that
the entity committed itself to the exit plan. The exit cost included involuntary
employee termination benefits, estimates regarding our ability to sub-lease
vacated facilities, rates to be charged to a sub-tenant and the timing of the
sub-lease arrangement and included an estimate of the timing of the pace and
completion of the outsourcing of manufacturing to Flextronics, the contract
manufacturer. During the fourth quarter of 2002, we reduced the restructuring
accrual by $400 thousand to reflect mainly lower than estimated employee
termination costs. Our remaining cash lease commitments net of sub-lease income
related to restructured facilities are approximately $124 thousand, which is
fully accrued in the accompanying balance sheet.

     In July 2002, the Financial Accounting Standards Board issued SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities", SFAS No. 146
requires that a liability for a cost that is associated with an exit activity be
recognized only when the liability is incurred. It supersedes the guidance in
EITF 94-3. In SFAS No. 146, an entity's commitment to a plan does not, by
itself, create a present obligation to other parties that meets the definition
of a liability and establishes that fair value is the objective for the initial
measurement of the liability. Although SFAS No. 146 became effective for exit or
disposal activities initiated after December 31, 2002, we elected to adopt the
new ruling in respect of our fourth quarter 2002 restructuring plan. With the
acquisition of TCS, we identified an opportunity to increase flexibility and
focus, improve responsiveness and reduce unnecessary overhead. We adopted a plan
to achieve these objectives in December 2002 which involves the phased reduction
of approximately 140 of our initially combined 1,077 staff and consolidation of
certain offices. Some of the involuntary reductions were effected in December
and the liability related to those terminations of $282 thousand was included in
our fourth quarter 2002 results. The remaining reductions in force are planned
to be implemented over the first three quarters of 2003.

In the event that we redefine our strategic direction and/or difficult economic
conditions continue to prevail, we may be required to implement further
restructuring measures. We are not currently able to determine whether or to
what extent such circumstances may continue or worsen.

                                       42
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth selected consolidated income statement data
for NICE for each of the three years ended December 31, 2000, 2001, and 2002
expressed as a percentage of total revenues. Figures may not add due to
rounding.

<TABLE>
<CAPTION>
                                                      2000              2001              2002
                                                  ------------      ------------     -------------
<S>                                                <C>               <C>               <C>
Revenues
         Products                                     n/a     %            88.6 %            82.9 %
         Services                                     n/a                  11.4              17.1
                                                  ------------      ------------     -------------
                                                        100.0             100.0             100.0
Cost of revenues
         Products                                     n/a                  48.2 *            43.5 *
         Services                                     n/a                 134.4 *            94.0 *
                                                  ------------      ------------     -------------
                                                         48.0              58.0              52.2

Gross profit                                             52.0              42.0              47.8

Operating expenses
         Research and development, net                   12.7              15.1              11.0
         Selling and marketing                           23.1              27.6              24.9
         General and administrative                      18.5              21.4              14.6
         Restructuring and other                          0.0              11.5              -0.3
         In-process research and development              4.4               0.0               0.8
         Amortization of acquired intangibles             0.6               2.7               0.0
         Goodwill impairment                              0.0               0.0              17.4
                                                  ------------      ------------     -------------
Total operating expenses                                 59.3              78.3              68.4

Operating loss                                           -7.3             -36.3             -20.6
Financial income, net                                     4.0               3.3               2.4
Other income (expenses), net                              0.0              -3.8              -2.5
                                                  ------------      ------------     -------------

Loss before taxes on income                              -3.3             -36.8             -20.7
Taxes on income                                           0.2               0.2               0.2
                                                  ------------      ------------     -------------

Net loss                                                 -3.5 %           -37.0 %           -20.9 %
                                                  ============      ============     =============

*Percent of related revenue.
</TABLE>

YEARS ENDED DECEMBER 31, 2002 AND 2001

     REVENUES. Our total revenues rose 28% to $162.5 million in 2002 from $127.1
million in 2001.

                                       43
<PAGE>

     Product revenues rose $22.1 million or 20% to $134.8 million in 2002 from
$112.6 million in the prior year due mainly to a net $19.9 million (23%)
increase in sales of our audio platform and related applications mainly to
contact center and trading floor markets and an $8.3 million (60%) increase in
digital video platform sales. These increases were partially offset by a $6.1
million (46%) decrease in sales of our COMINT/DF products. We believe that our
growth in product sales to contact center and financial trading floor markets
principally reflects market share gains but also the inclusion of $6.8 million
of revenues following the acquisition of TCS in November 2002. There can be no
assurance that we will continue to experience market share gains or that, given
the continuing weakened global economy, we will continue to report growth in
audio platform and related software application sales. We believe that the
high-end digital video market is still in its nascency and thus volatile;
consequently, looking forward, we do not expect to experience the same degree of
growth in revenues as we did in 2002.

     Services revenues rose $13.2 million (92%) to $27.7 million in 2002 from
$14.5 million in the previous year. The increase reflects an increasing portion
of our installed base engaging us for maintenance services, higher installation
and training revenues related to the increase in contact center and financial
trading floor sales and $1.5 million in services revenue following the
acquisition of TCS. Service revenues accounted for 17% of total revenues up from
11% in 2001. Although we generate lower profit margins on services than on
products, our strategy is to continue to grow our global services business,
which we believe increases the competitiveness of our product offerings, and
thus expect services to represent a growing portion of total revenues in the
future.

     Revenues in 2002 in the Americas, which includes the United States, Canada,
Latin and South America, rose 33% to $88.4 million from $66.3 million in 2001.
The increase is largely attributable to higher sales of products and services to
contact center and financial trading floor markets. Sales to Europe, Middle East
and Africa ("EMEA") rose 29% to $51.2 million in 2002 from $39.8 million in
2001. The increase is due mainly to the acquisition of TCS in November 2002
($6.6 million) and the more than doubling of digital video sales in this region.
Sales to Asia-Pacific ("APAC") increased 9% to $22.8 million in 2002 from $21.0
million in 2001.

     COST OF REVENUES. Cost of revenues was $84.7 million in 2002 compared with
$73.8 million in 2001.

     Cost of product revenues rose 8% to $58.7 million in 2002 from $54.3
million in 2001. The increase in cost in 2002 is due to the higher sales volume.
Cost of services revenue rose 34% to $26.1 million from $19.4 million in 2001.
The increase in cost is due principally to higher labor, travel and material
costs associated with the growth in product installations and maintenance
contracts and $1.4 million of service costs incurred following the acquisition
of TCS.

     GROSS PROFIT. Gross profit on product revenues represented 56.5% of product
revenues in 2002 compared with 51.8% in 2001 due mainly to a higher proportion
of sales of our comparatively higher margin audio platform and applications in
the sales mix and product manufacturing cost efficiencies achieved through both
the outsourcing of manufacturing to the contract manufacturer over the course of
the year and engineering design modifications mainly to our digital video
recording platform. Gross profit margin on services revenue was 6% in 2002
compared with a loss of 34% in 2001 due primarily to the higher growth rate in
services revenues as compared with service expenses. For the reasons mentioned
above, gross profit was $77.8 million or 47.8% of total revenues in 2002
compared with $53.3 million or 42.0% of revenues in 2001. On a forward-looking
basis, we expect our gross margins to increase gradually as we realize the
benefit of contract manufacturing efficiencies, of leveraging our global service
operations and of a growing proportion of software applications in our product
revenue mix.

                                       44
<PAGE>

     RESEARCH AND DEVELOPMENT, NET. Research and development expense, before
capitalization of software development costs and grants, declined to $24.7
million in 2002 from $26.0 million in 2001 and represented 15.2% and 20.5% of
revenues in 2002 and 2001, respectively. The decrease in gross outlays is due
mainly to the impact of the approximate 7% annual devaluation of the New Israel
Shekel to the US dollar on R&D labor costs, as approximately 75% of our R&D
staff is based in Israel, and a lower average number of R&D staff in 2002 versus
2001.

     Software development costs capitalized were $4.6 million in 2002 compared
with $5.4 million in 2001. Net research and development expense decreased 7% in
2002 to $17.9 million from $19.2 million in 2001. Amortization of capitalized
software development costs, included in cost of product revenues, was $4.3
million and $2.8 million in 2002 and 2001, respectively.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses in 2002
increased 16% to $40.5 million from $35.0 million in 2001. The increase in
selling and marketing expenses was due principally to higher labor costs mainly
from the acquisition of TCS, higher commission expenses and higher discretionary
marketing outlays for trade shows and promotional activities. Selling and
marketing expenses represented 24.9% of total revenues in 2002 compared with
27.6% in 2001. We expect that we will continue to leverage our global sales and
distribution infrastructure in the future such that selling and marketing
expenses, while increasing on an absolute dollar basis, will decline moderately
as a percentage of total revenues.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 12% in 2002 to $23.8 million from $27.1 million in 2001. The reduction
in cost in 2002 was due primarily to lower legal costs and general cost
containment efforts only partly offset by higher corporate insurance premiums
and allowances for doubtful accounts. The increase in the allowance for doubtful
accounts in 2002 compared with 2001 is mainly due to specific accounts deemed
uncollectible and an increase in the aging of receivables reflecting weak
general economic conditions worldwide. On a forward-looking basis, general and
administrative expenses are expected to increase in absolute terms due mainly to
the inclusion for a full year of the operations of TCS and higher corporate
insurance premiums.

     RESTRUCTURING. In connection with the restructuring plan implemented in
December 2002, we recorded restructuring and other related charges of $282
thousand in accordance with SFAS No. 146. All of the staff whose termination
costs were included in our fourth quarter 2002 financial statements were located
in North America. The plan also included vacating a portion of our Southampton
facility and the closing of our Herndon, Virginia and Bergisch Gladbach, Germany
offices.

                                       45
<PAGE>

     In the quarter ending December 31, 2002, we reduced the remaining 2001
restructuring plan accrual by $400 thousand. The 2001 restructuring plan charge
of $14.6 million included severance and outplacement costs of $9.6 million,
consolidation of facility costs of $1.9 million, related property write-downs of
$1.9 million and impairment of intangible assets and other of $1.1 million. The
2001 restructuring plan was substantially completed by December 31, 2001 with
the principal exception of employee terminations related to the completion of
the outsourcing of manufacturing of our products. The remaining amounts net of
sub-lease income relating to the consolidation of facilities in Sunnyvale and
Las Vegas of $124 thousand will be paid over the respective lease terms mainly
through 2005.

     IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the acquisition of
TCS and in accordance with SFAS No. 2 "Accounting for Research and Development
Costs", a portion of the purchase price, $1.3 million, was allocated to
purchased in-process research and development. As part of the process of
analyzing this acquisition, we made a decision to buy three technologies that
had not yet been commercialized rather than develop those technologies
internally. In doing so, we considered our internal research resource allocation
and our progress on comparable technology, if any. At the date of the
acquisition, technological feasibility had not yet been established for the
in-process research and development projects and they had no alternative future
use. Accordingly, the fair value allocated to these technologies, which was
based on an analysis of the discounted excess earnings that the intangible
assets generate over their expected lives, was immediately expensed at
acquisition.

     AMORTIZATION OF ACQUIRED INTANGIBLES. Amortization expense was $3.4 million
in 2001. With the adoption of SFAS No. 142 as of January 1, 2002, we ceased to
amortize acquired intangibles of indefinite lives, primarily goodwill.

     GOODWILL IMPAIRMENT. During the fourth quarter of 2002 we performed our
annual impairment test of acquired intangible assets as prescribed by SFAS No.
142. Our stock price had declined significantly from January 1, 2002, at which
point our market capitalization, based on our stock price, was below book value.
We determined the fair value of the Company based on relative market multiples
for comparable businesses and a discounted cash flow model. This evaluation
indicated that an impairment loss might exist. We then performed Step 2 under
SFAS No. 142 and compared the carrying amount of goodwill to the implied fair
value of the goodwill and determined that an impairment loss existed.

     A non-cash charge totaling $28.3 million was recorded in the fourth quarter
of 2002 to write down the goodwill recorded primarily in the acquisitions of
SCI, CPS and STS to its fair value. We will perform an impairment test at least
annually and on an interim basis should circumstances indicate that an
impairment loss may exist. The outcome of such testing may lead to the
recognition of an impairment loss. As of December 31, 2002, we had $33.7 million
of non-amortizable goodwill and other intangible assets.

     FINANCIAL INCOME, NET. Financial income, net decreased 6% to $4.0 million
in 2002 from $4.3 million in 2001. The decrease in 2002 reflects lower
prevailing average market interest rates in 2002 compared with 2001 only partly
offset by exchange gains.

                                       46
<PAGE>

     OTHER INCOME (EXPENSE), NET. Other expense, net was $4.1 million in 2002
compared with $4.8 million in 2001. In 2002, we recorded $3.5 million in respect
of the settlement of claims by Douglas Chapiewski, the sole shareholder of CPS;
$335 thousand representing the cost of moving our North American headquarters to
a different facility, and $229 thousand to write-off of our long-term investment
in Espro Ltd. In 2001, we recorded a $4.4 million charge following the
settlement of a dispute with SCI relating to certain post-closing adjustments in
connection with the acquisition of certain assets and liabilities by NICE.

     TAXES ON INCOME. In 2002, we recorded a provision for income taxes of $350
thousand compared with $198 thousand in 2001. The increase is primarily related
to operating profits recorded at certain distribution subsidiaries where net
operating loss carryforwards are not available to offset operating profits and
changes in US state tax laws.

     NET LOSS. Net loss was $34.0 million in 2002 compared with a net loss of
$46.8 million in 2001. The decrease in 2002 resulted primarily from the increase
in revenues and gross margin.


YEARS ENDED DECEMBER 31, 2001, AND 2000

     REVENUES. Our revenues decreased to $127.1 million in 2001 from $153.2
million in 2000. The 17% decrease in revenues in 2001 was due primarily to the
overall slowdown in technology spending combined with the impact, particularly
in North America, of internal operational changes implemented in early 2001.
Sales in North America declined 26% in 2001 (after increasing 40% in 2000).
Sales in Europe (including Israel) decreased 14% and sales in the rest of the
world rose 2% in 2001. On a product line basis, sales of our audio recording
platform and related applications for contact centers and financial trading
floors decreased 22% to $99.8 million in 2001 and represented 79% of total
revenues; sales of digital video products declined 11% to $14.1 million and
represented 11% of total revenues, and revenues from sales of COMINT systems
increased 52% to $13.2 million and accounted for 10% of total revenues.

     COST OF REVENUES. Cost of revenues was $73.8 million in 2001 compared with
$73.6 million in 2000. During 2000, we more than doubled the number of customer
support staff who provide installation and technical support to our customers
from about 100 at the start of the year to approximately 210 at the end of
December 2000. Of the total, 37 support employees joined us as part of the
December 2000 acquisition of the direct sales and customer support channel and
service and maintenance agreements of our then largest distributor in North
America, Stevens Communications, Inc. As a result, the increase in cost of
revenues in 2001 was due primarily to the impact on an annual basis of the
significant increase in the number of customer support employees and related
costs without a commensurate increase in customer support revenue, which
resulted in a substantial negative gross profit on customer support. This
increase in customer support cost was only partly offset by lower sales volume
and manufacturing labor costs.

                                       47
<PAGE>

     GROSS PROFIT. For the reasons mentioned above, gross profit was $53.3
million in 2001 compared with $79.6 million in 2000. Gross profit margin was
42.0% and 52.0% in 2001 and 2000, respectively.

     RESEARCH AND DEVELOPMENT, NET. Research and development expense, before
capitalization of software development costs and grants, rose to $26.0 million
in 2001 from $25.4 million in 2000 and represented 20.5% and 16.6% of revenues
in 2001 and 2000, respectively. The level of spending reflects our efforts to
continue to improve our long-term competitive position. In 2000, we increased
the number of R&D staff by 24% in order to support the development of new or
enhanced products for each of our product lines. In 2001, these efforts included
major functionality improvements to our voice recording platforms and quality
monitoring and contact center performance applications as well as the market
introduction of the NICEVISION PRO high-end video recording platform and the
NICETRACK telecommunications monitoring solution. The increase in gross research
and development expense in 2001 resulted from the overall average higher level
of R&D staff.

     Software development costs capitalized were $5.4 million in 2001 compared
with $4.7 million in 2000. Net research and development expense decreased 2% in
2001 to $19.2 million from $19.5 million in 2000. Amortization of capitalized
software development costs, included in cost of revenues, was $2.8 million and
$1.6 million in 2001 and 2000, respectively.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses in 2001 were
$35.0 million compared with $35.4 million in 2000. The decrease in selling and
marketing expenses was due principally to reductions in staff, lower
revenue-related expenses and lower discretionary marketing outlays only partly
offset by expansion of our sales and marketing infrastructure in Europe and
Asia.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $27.1 million in 2001 and $28.3 million in 2000. The decrease in 2001 was
due primarily to the reduction in administrative staff and cost containment
efforts.

     RESTRUCTURING AND OTHER SPECIAL CHARGES.

     RESTRUCTURING. As a result of the decline in general economic and business
conditions in late 2000 and the changing competitive environment, we implemented
a restructuring program in 2001 to better align our cost structure with the
current business environment and to focus our resources on the highest potential
growth areas of our business. As a result, we incurred a $14.6 million charge
for restructuring costs in the first quarter of 2001.

     Our restructuring program included a 30% reduction in force across all
business functions. Approximately 60% of such employees were based in Israel and
the remainder were based in primarily in North America. The workforce reduction
resulted in a charge of $9.6 million for termination benefits. We also
consolidated our North American operations into two main facilities and
eliminated excess field office space. The restructuring program included a
charge of $1.9 million for lease terminations and estimated losses on subleases
and $1.9 million for nonrecoverable investments in leasehold improvements and
facility equipment. The restructuring program included exiting a product line
acquired as part of the Dees transaction. As a result, a charge of $1.1 million,
relating to the impairment of the associated goodwill was taken.

                                       48
<PAGE>

     The restructuring program was substantially completed by December 31, 2001
with the principal exception of employee terminations related to the completion
of the outsourcing of manufacturing of our products. The cash impact of the
total charge was $11.0 million, of which $9.0 million was paid in 2001 and the
remainder was substantially paid by mid-2002. Amounts relating to the
consolidation of facilities will be paid over the respective lease terms mainly
through 2003.

     OTHER SPECIAL CHARGES. In 2000, the Company recorded a charge of $6.8
million related to in-process research and development of software acquired in
the CenterPoint Solutions, Inc. transaction for which technological feasibility
had not yet been established and for which no alternative future use existed.

     AMORTIZATION OF ACQUIRED INTANGIBLES. Amortization expense was $3.4 million
and $0.9 million in 2001 and 2000, respectively. The increase in 2001 is due
mainly to the acquisition of certain assets of SCI.

     FINANCIAL INCOME, NET. Financial income, net decreased 31% to $4.3 million
in 2001 from $6.2 million in 2000. The decrease in 2001 reflects lower average
cash balances and lower average interest rates in 2001 compared with 2000.

     OTHER INCOME (EXPENSE), NET. Other expense, net was $4.8 million in 2001
compared with other income, net of $53 thousand in 2000. In 2001, we recorded a
$4.4 million charge following the settlement of a dispute with SCI relating to
certain post-closing adjustments in connection with the acquisition of certain
assets and liabilities by NICE.

     NET LOSS. Net loss was $46.8 million in 2001 compared with $5.3 million in
2000. The decrease in 2001 resulted primarily from the factors described above.


LIQUIDITY AND CAPITAL RESOURCES

     We have historically financed our operations through cash generated from
operations and sales of equity securities. We invest our excess cash in
instruments that are highly liquid, investment grade securities. At December 31,
2002, we had approximately $ 68.6 million of cash and cash equivalents and short
and long-term investments compared with $89.0 million at December 31, 2001 and
$98.0 million at December 31, 2000. The decrease in 2002 is due to the payment
of $29.9 million in the acquisition of TCS partly offset by net operating cash
flow.

     For 2002, cash provided by operations was $20.1 million compared with $2.3
million in 2001. The improvement in 2002 compared with 2001 was primarily
attributable to the narrowed net loss and continued improvement in working
capital. We place particular focus on managing our working capital, particularly
the level of accounts receivable days sales outstanding and inventories. Days
sales outstanding (DSO) in accounts receivable for 2002, excluding the effect of
the acquisition of TCS, was 94 days compared with 99 days at the end of 2001.
The improvement is primarily attributable to the implementation of process
improvements and our credit policy. Including the impact of the acquisition of
the assets of TCS, our DSO was 118 days. We expect to see our DSO return to
levels below 100 days during the first half of 2003. In connection with the TCS
acquisition, we recorded a current liability of $2.8 million and a long-term
liability of $13.5 million reflecting obligations under a long-term contract
assumed by NICE. We have entered into negotiations to amend this contract but
there can be no assurance that we will be successful in these negotiations.

                                       49
<PAGE>

     For 2001, cash provided by operations was $2.3 million, compared with cash
used in operations of $2.1 million in 2000 The improvement in 2001 compared with
2000 was primarily attributable to an overall improvement in working capital
associated with substantial reductions in accounts receivable and inventories
largely offset by the $46.8 million loss incurred in the year. Days sales
outstanding (DSO) in accounts receivable was 99 days at the end of 2001 compared
with 113 days at December 31, 2000.

     Net cash used in investing activities was $28.3 million compared with net
cash provided by investing activities of $2.5 million in 2001. The decrease in
2002 is due to the acquisition of TCS. Capital expenditures were $5.4 million in
2002 and $7.6 million in 2001. Capital expenditures in 2002 included investment
in additional modules for our global ERP system including the implementation of
the order management and financial system modules at TCS' Southampton facility
following the acquisition and equipment for research and development and
demonstration purposes. As of December 31, 2002, we have no material commitment
for capital expenditures.

     Net cash provided by investing activities was $2.5 million in 2001 and net
cash used in investing activities was $18.1 million in 2000. The increase in
2001 reflects lower capital expenditures and lower outlays for acquisitions.
Capital expenditures were $7.6 million and $14.2 million in 2001 and 2000,
respectively. 2001 capital expenditures related primarily to investment in a
global ERP system and equipment for research and development purposes.

     Net cash provided by financing activities (mainly net proceeds from the
issuance of shares upon the exercise of stock options) was $2.1 million, $1.9
million and $15.0 million in 2002, 2001 and 2000, respectively, primarily as a
result of stock options exercised. We have available for use short-term
revolving lines of credit at a number of commercial banks totaling up to $25
million. As of December 2002, we also have available for use committed credit
lines of $22 million secured by one of our commercial bond portfolios. There are
no financial covenants associated with these credit lines. As of December 31,
2002, we had less than $0.1 million outstanding on our lines of credit. As of
May 1, 2003, no amounts were drawn against our short-term lines of credit. The
availability under the lines of credit has been reduced, however, by $2.2
million in outstanding guarantees and letters of credit. Additionally, we have
one advance payment guarantee in the amount of $1.6 million which stipulates
that the Company will have at least $20 million of cash and long term
investments and shareholders' equity of $100 million.

     We believe that based on our current operating forecast, the combination of
existing working capital, expected cash flows from operations and available
credit lines will be sufficient to finance our ongoing operations for the next
twelve months. Depending upon our future growth, the success of our business
initiatives and acquisition opportunities, we will consider from time to time
various financing alternatives and may seek to raise additional capital to
finance our strategic efforts through debt or equity financing, the sale of
non-strategic assets or to enter into strategic arrangements.

                                       50
<PAGE>

     Set forth below are our contractual obligations and other commercial
commitments over the medium term as of December 31, 2002($ in thousands):

<TABLE>
<CAPTION>
<S>                                   <C>                <C>           <C>            <C>              <C>
- -------------------------------------------------------------------------------------------------------------------
                                                             PAYMENTS DUE BY PERIOD
                              -------------------------------------------------------------------------------------
                                                      LESS THAN 1
CONTRACTUAL OBLIGATIONS                TOTAL             YEAR        1- 3 YEARS    4-5 YEARS     AFTER 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Operating Leases                      12,392             5,358         6,437          579              18
- -------------------------------------------------------------------------------------------------------------------
Unconditional Purchase
Obligations                           15,377             6,190         9,187           -
- -------------------------------------------------------------------------------------------------------------------
Other Long-Term Obligations
- -------------------------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations                           27,769             11,548        15,624         579              18
- -------------------------------------------------------------------------------------------------------------------


- -------------------------------------------------------------------------------------------------------------------
                                                              AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                                     --------------------------------------------------------------
                                      TOTAL
                                     AMOUNTS         LESS THAN 1
                                    COMMITTED          YEAR        1- 3 YEARS      4-5 YEARS      OVER 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
OTHER COMMERCIAL COMMITMENTS
- -------------------------------------------------------------------------------------------------------------------
Lines of Credit
- -------------------------------------------------------------------------------------------------------------------
Standby Letters of Credit
- -------------------------------------------------------------------------------------------------------------------
Guarantees                             3,778              800          2,488          490
- -------------------------------------------------------------------------------------------------------------------
Standby Repurchase Obligations
- -------------------------------------------------------------------------------------------------------------------
Other Commercial Commitments
- -------------------------------------------------------------------------------------------------------------------
Total Commercial Commitments
                                       3,778              800          2,488          490
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       51
<PAGE>

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     Market risks relating to our operations result primarily from weak economic
conditions in the markets in which we sell our products and changes in interest
rates and exchange rates. To manage the volatility related to the latter
exposure, we may enter into various derivative transactions. Our objective is to
reduce, where it is deemed appropriate to do so, fluctuations in earnings and
cash flows associated with changes in currency exchange rates. It is our policy
and practice to use derivative financial instruments only to manage exposures.
We do not use financial instruments for trading purposes and are not a party to
any leveraged derivative.

     FOREIGN CURRENCY RISK. We conduct our business primarily in U.S. dollars
but also in the currencies of the United Kingdom, Canada, the European Union and
Israel. Thus, we are exposed to foreign exchange movements, primarily in UK,
European and Israel currencies. We monitor foreign currency exposure and, from
time to time, may enter into various contracts to preserve the value of sales
transactions and commitments.

     INTEREST RATE RISK. We invest in investment-grade U.S. corporate bonds and
dollar deposits with FDIC-insured U.S. banks. Since these investments carry
fixed interest rates and since our policy and practice is to hold these
investments to maturity, interest income over the holding period is not
sensitive to changes in interest rates. As of December 31, 2002, we had no other
exposure to changes in interest rates and had no interest rate derivative
financial instruments outstanding.

RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses significant issues
regarding the recognition, measurement, and reporting of costs associated with
exit and disposal activities, including restructuring activities. SFAS No. 146
requires that costs associated with exit or disposal activities be recognized
when they are incurred rather than at the date of a commitment to an exit or
disposal plan. SFAS No. 146 is effective for all exit or disposal activities
initiated after December 31, 2002. The Company elected early adoption of SFAS
No. 146.


FACTORS THAT MAY AFFECT FUTURE RESULTS

     We operate globally in a dynamic and changing environment that involves
numerous risks and uncertainties. The following section lists some, but not all,
of those risks and uncertainties that could cause actual results and outcomes to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company.

     THE OVERALL ECONOMIC ENVIRONMENT CONTINUES TO BE WEAK. We are subject to
the effects of general global economic and market conditions. Our operating
results have been materially adversely affected as a result of recent
unfavorable economic conditions and reduced information technology spending,
particularly in the product segments in which we compete. During 2002, there was
an increase in demand for our type of products as customers allocated resources
to enhance their recording and analysis capabilities for compliance and risk
management and for security. However, customer purchase decisions may be
significantly affected by a variety of factors including trends in spending for
information technology, enterprise software, market competition, and the
viability or announcement of alternative technologies. If economic conditions
continue to be weak, demand for our products could decrease resulting in lower
revenues, profits and cash flows.

                                       52
<PAGE>

     OUR BUSINESS STRATEGY CONTINUES TO EVOLVE. Historically we have supplied
the hardware and some software for implementing multimedia recording solutions.
Our shift to providing professional support services and now towards an
enterprise software business model has required and will continue to require
substantial change, potentially resulting in some disruption to our business.
These changes may include changes in management and technical personnel;
expanded or differing competition resulting from entering the enterprise
software market; increased need to expand our distribution network to include
system integrators which could impact revenues and gross margins, and, as our
applications are sold either to our installed base or to new customers together
with our recording platforms, the rate of adoption of our software applications
by the market.

     WE MAY EXPERIENCE DIFFICULTY MANAGING CHANGES IN OUR BUSINESS. The changes
in our business may place a significant strain on our operational and financial
resources. We may experience substantial disruption from changes and could incur
significant expenses and write-offs. If we do not carefully manage expense and
inventory levels consistent with product demand and do not carefully manage
accounts receivable to limit credit risk, this could materially adversely affect
our results of operations.

     OUR SERVICE REVENUES ARE DEPENDENT ON OUR INSTALLED BASE OF CUSTOMERS. We
derive a significant portion of our revenues from services, which include
maintenance, project management, support and training. As a result, if we lose a
major customer or if a support contract is delayed or cancelled, our revenues
would be adversely affected. In addition, customers who have accounted for
significant services revenues in the past may not generate revenues in future
periods. Our failure to obtain new customers or additional orders from existing
customers could also materially affect our results of operations.

     RISKS ASSOCIATED WITH OUR DISTRIBUTION CHANNELS MAY MATERIALLY ADVERSELY
AFFECT OUR FINANCIAL Results. We have agreements in place with many
distributors, dealers and resellers to market and sell our products and services
in addition to our direct sales force. We derive a significant percentage of our
revenues from one or more of our distributor channels. Our financial results
could be materially adversely affected if our contracts with channel partners
were terminated, if our relationship with channel partners were to deteriorate
or if the financial condition of our channel partners were to weaken. In
addition, as our market opportunities change, we may have increased reliance on
particular channel partners, which may negatively impact gross margins. There
can be no assurance that we will be successful in maintaining or expanding these
channels. If we are not successful, we may lose sales opportunities, customers
and market share. In addition, there can be no assurance that our channel
partners will not develop or market products or services in competition with us
in the future.

                                       53
<PAGE>

     OUR UNEVEN SALES PATTERNS COULD SIGNIFICANTLY IMPACT OUR QUARTERLY REVENUES
AND EARNINGS. The sales cycle for our solutions is variable, typically ranging
between a few weeks to several months from initial contact with the potential
client to the signing of a contract. Frequently, sales orders accumulate towards
the latter part of a given quarter. Looking forward, given the lead-time
required by our contract manufacturer, if a large portion of sales orders are
received late in the quarter, we may not be able to deliver product within the
quarter and thus such sales will be deferred to a future quarter. There can be
no assurance that such deferrals will result in sales in the near term, or at
all. Thus, delays in executing client orders may affect our revenue and cause
our operating results to vary widely. Additionally, as a high percentage of our
expenses, particularly employee compensation, is relatively fixed, a variation
in the level of sales, especially at or near the end of any quarter, may have a
material adverse impact on our quarterly operating results.

     COMPETITIVE PRICING AND DIFFICULTY MANAGING PRODUCT COSTS COULD MATERIALLY
ADVERSELY AFFECT OUR REVENUES AND EARNINGS. The market for our products and
related services, in general, is highly competitive. Additionally, some of our
principal competitors such as Witness Inc., Verint, Inc., and ASC may have
significantly greater resources and larger customer bases than do we. We have
seen evidence of deep price reductions by our competitors and expect to continue
to see such behavior in the future, which, if we are required to match such
discounting, will adversely affect our gross margins and results of operations.
To date, we have been able to manage our product design and component costs.
However, there can be no assurance that we will be able to continue to achieve
reductions in component and product design costs. Further, the relative and
varying rates of increases or decreases in product price and cost could have a
material adverse impact on our earnings.

     OUR GROSS MARGINS ARE HIGHLY DEPENDENT UPON OUR PRODUCT MIX. It is
difficult to predict the exact mix of products for any period between hardware,
software and services as well as within the product category between audio
platforms and related applications, digital video and COMINT.

     IF OUR SUPPLIERS ARE NOT ABLE TO MEET OUR REQUIREMENTS, WE COULD HAVE
DECREASED REVENUES AND EARNINGS:

     o    We migrated the manufacturing of all of our key products to a contract
          manufacturer. The TCS product line is also manufactured by a third
          party. We may experience delivery delays due the inability of the
          outsourcers to consistently meet our quality or delivery requirements.
          If these suppliers or any other supplier were to cancel contracts or
          commitments with us or fail to meet the quality or delivery
          requirements needed to satisfy customer orders for our products, we
          could lose time-sensitive customer orders and have significantly
          decreased quarterly revenues and earnings, which would have a material
          adverse effect on our business, results of operations and financial
          condition.

     o    Should we have on-going performance issues with our contract
          manufacturers, the process to move from one contractor to another is a
          lengthy and costly process that could affect our ability to execute
          customer shipment requirements and /or might negatively affect revenue
          and/or costs.

                                       54
<PAGE>

We depend on certain critical components in the production of our products and
parts. Some of these components are obtained only from a single supplier and
only in limited quantities. In addition, some of our major suppliers use
proprietary technology and software code that could require significant redesign
of our products in the case of a change in vendor. Further, if suppliers
discontinue their products, or modify them in manners incompatible with our
current use, or use manufacturing processes and tools that could not be easily
migrated to other vendors, we could have significant delays in product
availability, which would have a significant adverse impact on our results of
operations and financial condition.

     UNDETECTED PROBLEMS IN OUR PRODUCTS COULD DIRECTLY IMPAIR OUR FINANCIAL
RESULTS. If flaws in design, production, assembly or testing of our products (by
us or our suppliers) were to occur, we could experience a rate of failure in our
products that would result in substantial repair, replacement or service costs
and potential liability and damage to our reputation. There can be no assurance
that our efforts to monitor, develop, modify and implement appropriate test and
manufactruing processes for our products will be sufficicent to permit us to
avoid a rate of failure in our products that results in substantial delays in
shipment, significant repair or replacement costs or potential damage to our
reputation, any of which could have a material adverse effect on our business,
results of operations and financial condition.

     OUR GROWTH IS DEPENDENT UPON RECRUITING AND RETAINING KEY PERSONNEL. If our
growth continues, we will be required to hire and integrate new employees. There
can be no assurance that we will be able to successfully recruit and integrate
new employees. Competition for highly skilled employees, including sales,
technical and management personnel, may again become high in the technology
industry. We may experience personnel changes as a result of our move from
multimedia recording equipment towards business performance solutions. Our
failure to attract talented employees or retain the services of key personnel,
could have a material adverse effect on our results of operations and financial
position.

     WE MAY EXPERIENCE DIFFICULTY MANAGING OPERATIONAL EXPANSION. We have
recently established a sales infrastructure in Hong Kong by relocating a portion
of our Israel-based sales operations and by recruiting new managers and sales
persons in order to bring about a growth in revenue in the Asia Pacific market.
We may establish additional operations within the region where growth
opportunities are projected to warrant the investment. However, we cannot assure
you that our revenues will increase as a result of this expansion or that we
will be able to recover the expenses we incurred in effecting the expansion. Our
failure to effectively manage our expansion of our sales, marketing, service and
support organizations could have a negative impact on our business. To
accommodate our global expansion, we are continuously implementing new or
expanded business systems, procedures and controls. There can be no assurance
that the implementation of such systems, procedures, controls and other internal
systems can be completed successfully.

                                       55
<PAGE>

     CHANGES IN FOREIGN CONDITIONS COULD MATERIALLY ADVERSELY AFFECT OUR
FINANCIAL RESULTS. Approximately half of our revenues are derived from sales
outside the United States. Accordingly, our future results could be materially
adversely affected by a variety of factors including changes in exchange rates,
general economic conditions, regulatory requirements, tax structures or changes
in tax laws, and longer payment cycles in the countries in our geographic areas
of operations.

     OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED AS A RESULT OF THE
RISKS ASSOCIATED WITH ACQUISITIONS AND INVESTMENTS. As part of our growth
strategy, we have made a number of acquisitions and have made minority
investments in complementary businesses, products or technologies. We frequently
evaluate the tactical or strategic opportunity available related to
complementary businesses, products or technologies. The process of integrating
an acquired company's business into our operations and/or of investing in new
technologies, may result in unforeseen operating difficulties and large
expenditures and may absorb significant management attention that would
otherwise be available for the ongoing development of our business. Other risks
commonly encountered with acquisitions include the effect of the acquisition on
our financial and strategic position and reputation; the failure of the acquired
business to further our strategies, the inability to successfully integrate or
commercialize acquired technologies or otherwise realize anticipated synergies
or economies of scale on a timely basis and the potential impairment of acquired
assets. Moreover, there can be no assurance that the anticipated benefits of any
acquisition or investment will be realized. Future acquisitions or investments
contemplated and/or consummated could result in potentially dilutive issuances
of equity securities, the incurrence of debt and contingent liabilities,
amortization expenses related to intangible assets, any of which could have a
material adverse effect on our operating results and financial condition. We
have also invested in companies, which can still be considered in the start-up
or development stages. These investments are inherently risky as the market for
the technologies or products they have under development are typically in the
early stages and may never materialize. We could lose our entire initial
investment in these companies.

     WE MAY BE UNABLE TO KEEP PACE WITH RAPID INDUSTRY, TECHNOLOGICAL AND MARKET
CHANGES. The market for our products and services is subject to rapid
technological change and new product introductions. Current competitors and/or
new market entrants may develop new, proprietary products with features that
could adversely affect the competitive position of our products. We may not
successfully anticipate market demand for new products or services, or introduce
them in a timely manner. The convergence of voice and data networks, wired and
wireless communications could require substantial modification and customization
of our current products and business models, as well as the introduction of new
products. Further, customer acceptance of these new technologies may be slower
than we anticipate. We may not be able to compete effectively in these markets.
In addition, our products must readily integrate with major third party
security, telephone, front-office and back-office systems. Any changes to these
third party systems could require us to redesign our products, and any such
redesign might not be possible on a timely basis or achieve market acceptance.
Additional factors that may cause actual results to differ materially from our
expectations include industry specific factors; our ability to continuously
develop, introduce and deliver commercially viable products, solutions and
technologies, and the market's rate of acceptance of the solutions we offer and
our ability to keep pace with market and technology changes and to compete
successfully.

                                       56
<PAGE>

     WE FACE POTENTIAL PRODUCT LIABILITY CLAIMS AGAINST US. We may be subject to
claims that our products are defective or that some function or malfunction of
our products caused or contributed to property, bodily or consequential damages.
We minimize this risk by incorporating provisions into our distribution and
standard sales agreements that are designed to limit our exposure to potential
claims of liability. We carry product liability insurance in the amount of
$10,000,000 per occurrence and $10,000,000 overall. No assurance can be given
that all claims will be covered either by the contractual provisions limiting
liability or by the insurance, or that the amount of any individual claim or all
claims will be covered by the insurance or that the amount of any individual
claim or all claims in the aggregate will not exceed policy coverage limits.

     OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY. Our
success is dependent, to a certain extent, upon our proprietary technology. We
currently rely on a combination of patent, trade secret, copyright and trademark
law, together with non-disclosure and non-compete agreements, to establish and
protect the technology used in our systems. However, we cannot assure you that
such measures will protect our proprietary technology that competitors will not
develop products with features based upon, or otherwise similar to, our systems
or that we will prevail in any proceeding instituted by us in order to enjoin
competitors from selling similar products.

     WE ARE INVOLVED IN LITIGATION AND MAY BECOME INVOLVED IN LITIGATION THAT
MAY MATERIALLY ADVERSELY AFFECT US. In our industry, there has been extensive
litigation regarding patents and other intellectual property rights. Although we
believe that our products do not infringe upon the proprietary rights of third
parties, we cannot assure you that one or more third parties will not make a
contrary claim or that we will be successful in defending such claim. In June
2000, Dictaphone Corporation, one of our competitors, filed a patent
infringement claim relating to certain technology embedded in some of our
products. The claim is for damages for past infringement and enjoinment of any
continued infringement of Dictaphone patents. In the court's discretion, the
damages may be trebled and attorney fees awarded. As a result we might be forced
to pay significant damages and licensing fees, modify our business practices or
even be enjoined from conducting a significant part of our U.S. business. Any
such results could materially harm our business. We believe, however, that we
have a valid defense to this claim and are vigorously defending it. We have
received notification from our insurance company indicating that the claim is
not covered by our insurance policy; however, our insurance company has agreed
to reimburse for us all legal expenses that we are expending in defense of the
claim while reserving its final decision on this matter until the final outcome
of the litigation. The discovery period is closed, dispositive motions have been
filed with the Court, and we are awaiting the Court's decisions on these motions
as well as scheduling for trial.

     In April 2002, we received a letter from Dictaphone stating that several of
our products were using technology protected by additional Dictaphone patents
and offering us a licensing arrangement for these patents. We believe that none
of our products infringe upon those patents. We cannot assure you, however, that
we will be successful in defending the Dictaphone infringement claim or other
claims, or that infringement claims or other claims, if asserted, will not have
a material adverse effect on our business, financial condition or results of
operations. Any claims, with or without merit, could be costly and
time-consuming to defend, divert our management's attention, cause product
delays and have an adverse effect on our revenues and operating results. If any
of our products were found to infringe a third party's proprietary rights, we
could be required to enter into royalty or licensing agreements to be able to
sell our products, which may not be available on terms acceptable to us or at
all.

                                       57
<PAGE>

     CHANGES IN ISRAELI GOVERNMENT BENEFIT PROGRAMS COULD MATERIALLY ADVERSELY
AFFECT US. We derive and expect to continue to derive significant benefits from
various programs and laws in Israel including tax benefits relating to our
"Approved Enterprise" programs and grants from the Office of the Chief
Scientist, or OCS, for research and development. To be eligible for these
grants, programs and tax benefits, we must continue to meet certain conditions,
including making certain specified investments in fixed assets. From time to
time, the Israeli Government has discussed reducing or eliminating the
availability of these grants, programs and benefits. Pursuant to an amendment to
Israeli regulations, income from two of our "Approved Enterprises" is exempt
from income tax for only two years. Following this two year period, the
Approved Enterprise" will be subject to corporate tax at a reduced rate of
10-25% (based on the percentage of foreign ownership in each taxable year) for
the following eight years. Income from the other two "Approved Enterprises" are
tax exempt for four years. Following this four year period, the "Approved
Enterprises" are subject to corporate tax at a reduced rate of 10-25% (based on
the percentage of foreign ownership in each taxable year) for the following six
years. If grants, programs and benefits available to us or the laws under which
they were granted are eliminated or their scope is further reduced, or if we
fail to meet the conditions of existing grants, programs or benefits and are
required to refund grants or tax benefits already received (together with
interest and certain inflation adjustments) or fail to receive approval for
future Approved Enterprises, our business, financial condition and results of
operations could be materially adversely affected.

     WE MAY HAVE EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES. As a global
corporation, we are subject to income taxes both in Israel and various foreign
jurisdictions. Our domestic and international tax liabilities are subject to the
allocation of revenues and expenses in different jurisdictions and the timing of
recognizing revenues and expenses. Additionally, the amount of income taxes paid
is subject to our interpretation of applicable laws in the jurisdictions in
which we file. From time to time, we are subject to income tax audits. While we
believe we comply with all applicable income tax laws, there can be no assurance
that a governing tax authority will not have a different interpretation of the
law and assess us with additional taxes. Should we be assessed additional taxes,
there could be a material adverse affect on our results of operations and
financial condition.

     OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED BY WAR, TERRORISM AND
NATURAL DISASTER. In the event of war, acts of terrorism or natural disaster,
such as widespread disease, earthquake and flood, we could experience
significant business interruption. Such conflicts may also cause damage or
disruption to transportation and communication systems, which could affect our
suppliers' ability to deliver products and to our employees' and distributors'
ability to conduct business and provide services.

     OUR STOCK PRICE IS VOLATILE. Numerous factors, some of which are beyond our
control, may cause the market price of our ordinary shares or the American
Depositary Shares (ADSs) representing our ordinary shares to fluctuate
significantly.

                                       58
<PAGE>

These factors include, among other things, announcements of technological
innovations, customer orders or new products by us or our competitors, earning
releases by us or our competitors, market conditions in the industry and the
general state of the securities markets (with particular emphasis on the
technology and Israeli sectors of the securities markets).

                                       59
<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

DIRECTORS AND SENIOR MANAGEMENT

     The following table sets forth, as of June 15, 2003, the name, age and
position of each of our directors and executive officers:

<TABLE>
<CAPTION>

     NAME                             AGE                      POSITION
     ----                             ---                      --------
<S>                                   <C>     <C>
Ron Gutler(2)                         45      Chairman of the Board of Directors

Joseph Atsmon(2)                      54      Vice-Chairman of the Board of Directors

Rimon Ben-Shaoul(4)                   58      Director

Joseph Dauber(1)(4)                   58      Director

Dan Falk(1)(2)(3)(4)                  58      Director

John Hughes                           51      Director

David Kostman                         38      Director

Dr. Leora  Meridor(1)(2)(3)           55      Director

Timothy Robinson(2)                   39      Director

Haim Shani                            46      President and Chief Executive Officer

Lauri Hanover                         43      Corporate Vice President and Chief Financial Officer

Ya'akov Huberman                      46      Corporate Vice President, Business Development

Dr. Rivi Sherman                      49      Corporate Vice President and Chief Technology Officer

Daphna Kedmi                          50      Corporate Vice President, General Counsel and Corporate Secretary

Meni Gal                              49      Corporate Vice President, Human Resources

Yoav Zaltzman                         45      Corporate Vice President, NiceTrack

Doron Eidelman                        48      Executive Vice President, NiceVision

Eytan Bar                             37      Corporate Vice President, Products

Zvi Baum                              47      Corporate Vice President, Marketing

Dr. Shlomo Shamir                     56      President and Chief Executive Officer of NICE Systems Inc.

Jim Park                              47      President NICE CTI Systems UK Ltd.
</TABLE>

                                       60
<PAGE>

     NAME                             AGE                      POSITION
     ----                             ---                      --------

Doron Ben Sira                        43      President NICE APAC Ltd.

Eran Porat                            41      Corporate Controller

     (1)  Member of the Internal Audit Committee.
     (2)  Member of the Audit Committee.
     (3)  Outside Director. See "-- Outside Directors."
     (4)  Member of the Compensation Committee

     Set forth below is a biographical summary of each of the above-named
directors and executive officers of NICE.

     RON GUTLER has been a director of NICE since May 2001 and chairman of the
board since May 2002. Mr. Gutler is currently the chairman of G.J.E 121
Promoting Investment Ltd., a real estate investment company. Between 2000 and
2002, he managed the Blue Border Horizon Fund, a global macro fund. Mr. Gutler
is a former Managing Director and a Partner of Bankers Trust Company (currently
part of Deutche Bank). Between 1987 and 1999, he filled various positions with
Bankers Trust. Mr. Gutler headed the Trading and Sales Activities in Asia, South
America and Emerging Europe. He also established and headed the Israeli office
of Bankers Trust. Mr. Gutler holds a Bachelor's degree in economics and
international relations and a Master`s degree in Business Administration, cum
laude, both from the Hebrew University, Jerusalem.

     JOSEPH ATSMON has been a director of NICE since September 2001 and
Vice-Chairman of the Board since May 2002. Mr. Atsmon currently serves as a
Director of Ceragon Networks. From 1995 until 2000, Mr. Atsmon served as Chief
Executive Officer of Teledata Communications Ltd., a public company acquired by
ADC Telecommunications Inc. in 1998. Mr. Atsmon had a twenty year career with
Tadiran Ltd. In his last role at Tadiran Ltd., Mr. Atsmon served as Corporate VP
for business development. Prior to that, he served as President of various
military communications divisions. Mr. Atsmon received a B.Sc. in Electrical
Engineering, suma cum laude, from the Technion, Israel Institute of Technology.

     RIMON BEN-SHAOUL has been a director of NICE since September 2001. Mr.
Ben-Shaoul currently serves as co-Chairman, President, and CEO of Koonras
Technologies Ltd. which he joined on February 1, 2001. Koonras Technologies Ltd.
is a technology investment company controlled by Poalim Investments Ltd., a
large Israeli holding company. Between 1997 and February 1, 2001, Mr. Ben-Shaoul
was the President and CEO of Clal Industries and Investments Ltd., one of the
largest holding companies in Israel with substantial holdings in the high tech
industry. During that time, Mr. Ben-Shaoul also served as Chairman of the Board
of Directors of Clal Electronics Industries Ltd., Scitex Corporation Ltd., and
various other companies within the Clal Group. Mr. Ben-Shaoul also served as a
director of ECI Telecom Ltd., Fundtech Ltd., Creo Products, Inc., Nova Measuring
Instruments Ltd., and other public and private companies. From 1985 to 1997, Mr.
Ben-Shaoul was President and CEO of Clal Insurance Company Ltd. and a director
of the company and its various subsidiaries. Mr. Ben-Shaoul holds a bachelor's
degree in economics and a master's degree in business administration, both from
Tel-Aviv University.
                                       61
<PAGE>

     JOSEPH DAUBER has been a director of NICE since April 2002. Mr. Dauber is
currently the chairman of the B.O.D of the Maritime Bank Of Israel. Until June
2002 he was deputy chairman of the board of Management and joint Managing
Director of Bank HaPoalim and was responsible for the commercial division of the
bank. During the years 1994-1996 and until 6/ 2002 Mr. Dauber served as Chairman
of Poalim American Express and of the Isracard Group. He holds a Bachelor's
degree in Economics and Statistics and an MBA, both from the Hebrew University
of Jerusalem.

     DAN FALK has been a director of NICE since January 2002. Mr. Falk serves as
a member of the boards of directors of Orbotech Systems Ltd., Attunity Ltd.,
Orad Ltd., Netafim Ltd., Visionix Ltd., Ramdor Ltd., Medcon Ltd., Advanced
Vision Technology Ltd., ClickSoftware Technologies Ltd., Dor Chemicals Ltd. and
Poalim(C.M.) Hi-Tech Ltd., all of which are Israeli companies. In1999 and 2000,
Mr. Falk was President and Chief Operating Officer of Sapiens International
Corporation N.V. From 1985 to 1999, Mr. Falk served in various positions in
Orbotech Systems Ltd., the last of which were Chief Financial Officer and
Executive Vice President. From 1973 to 1985, he served in several executive
positions in the Israel Discount Bank. Mr. Falk holds a Bachelor's degree in
Economics and Political Science and a Master's degree in Business Administration
from the Hebrew University, Jerusalem. As described above, Mr. Falk serves on
the board of directors of a number of companies, both public and private and
qualifies as an Outside Director under Israeli law. See "-- Outside Directors."

     JOHN HUGHES has been a director of NICE since November 2,2002.Mr Hughes is
currently Executive Vice President and COO of the Thales Group and CEO of its
IT&S Aerospace Business Areas. During the years 1997 until 2000 he held
positions with Lucent Technologies, and was President of its GMS/UMTS division
and in the years 1991 through 1997,Mr Hughes served as Director Convex Global
Field operations within the Hewlett Packard Company. Prior to that Mr. Hughes
held various positions with UK and US companies. Mr. Hughes holds a bachelor of
science degree in Electrical and Electronic Engineering from the University of
Hertfordshire.

     DAVID KOSTMAN has been a director of NICE since January 2000. Mr. Kostman
is currently the Chief Operating Officer of Delta Galil USA Inc., a subsidiary
of Delta Galil Industries Ltd., a Nasdaq-listed apparel manufacturer. Until May,
2002 he was the Chief Operating Officer of VerticalNet, Inc. and of VerticalNet
International, which he joined in June 2000. Prior thereto, Mr. Kostman was a
Managing Director in the Investment Banking Division of Lehman Brothers Inc.,
which he joined in 1994. Mr. Kostman holds a bachelor's degree in law from
Tel-Aviv University and a master's degree in business administration from
INSEAD, France.

     LEORA (RUBIN) MERIDOR has been a director of NICE since January 2002. Since
2001, Dr. Meridor has been the Chairman of the Board of Bezeq International,
Poalim Capital Markets and Walla Telecommunication. From 1996 to 2000, Dr.
Meridor served as Senior Vice President, Head of the Credit and Risk Management
Division of the First International Bank of Israel. Between 1983 and 1996 Dr.
Meridor held various positions in the Bank of Israel, the last of which was Head
of the Research Department. Dr. Meridor has held various teaching positions with
the Hebrew University and holds a Bachelor's degree in mathematics and physics,
a Master's degree in Mathematics and a PhD in Economics from the Hebrew
University, Jerusalem. Dr. Meridor serves on several boards of directors and
qualifies as an Outside Director under Israeli law. See "--Outside Directors."

                                       62
<PAGE>

     TIMOTHY ROBINSON has been a director of NICE since November 2, 2002. Mr.
Robinson is currently Senior Vice President of the Secure Operations business
unit of the Thales Group. During the years 1997-2001 Mr. Robinson was Chief
Executive of the DCS Group prior to which he was Managing Director of Silicon
Graphics/Cray Research. In the years 1984-1995 Mr. Robinson held several
positions with IBM Corporation in Europe and Asia the last of which was Director
of IBM UK. Mr. Robinson holds a Bachelor of Science (Hons) from the University
of Leeds and is currently a director of Camelot, the National Lottery Operator
for the United Kingdom.

     HAIM SHANI has served as President and Chief Executive Officer of NICE
since January 2001. Mr. Shani came to NICE from Applied Materials (Israel),
where he served as General Manager in its Israeli office from 1998 to 2000,
heading up the Process Diagnostic and Control (PDC) business group formed
following the acquisition by Applied Materials of Opal Ltd. and Orbot
Instruments, Ltd. Prior to joining Applied Materials, Mr. Shani held various
management positions at Orbotech Ltd. From 1995 to 1998, he served as Corporate
Vice President of Marketing and Business Development, from 1993 to 1995, he
served as President of Orbotech's subsidiary in Asia Pacific, based in Hong Kong
and from 1992 to 1993, he served as President of Orbotech Europe, based in
Brussels. From 1982 to 1992, Mr. Shani held various management positions at
Scitex Corporation and IBM Israel. Mr. Shani holds a bachelor's degree in
industrial and management engineering from the Technion - Israel Institute of
Technology and a master's degree in business administration from INSEAD, France.

     LAURI HANOVER has served as Corporate Vice President and Chief Financial
Officer of NICE since December 2000. Ms. Hanover previously served as Executive
Vice President and Chief Financial Officer of Sapiens International Corporation
N.V. since March 1997. From 1984 to 1997, Ms. Hanover served in a variety of
financial management positions, including Corporate Controller, at Scitex
Corporation Ltd. Prior thereto, Ms. Hanover was a senior financial analyst at
Philip Morris Companies, Inc. Ms. Hanover holds a bachelor's degree in finance
from the Wharton School of Business and a bachelor of arts degree from the
College of Arts and Sciences, both of the University of Pennsylvania. Ms.
Hanover also holds a master's degree in business administration from New York
University. Ms. Hanover is a Director and Chairman of the Audit Committee of
Nova Measuring Instruments Ltd.

     YA'AKOV HUBERMAN has served as Corporate Vice President, Business
Development of NICE since January 2000. From 1998 to January 2000, Mr. Huberman
served as Vice President of Marketing for the Enterprise Internetworking Systems
Group of Lucent Technologies Ltd. and, from 1995 to 1998, he was Vice President
of Global Marketing and Business Development for Lannet Data Communications
Ltd., which was acquired by Lucent in 1998. Prior thereto, Mr. Huberman was the
Managing Director of ServiceSoft Europe, a pan-European leading vendor of
artificial intelligence and knowledge-based software for call center and
customer service applications. Mr. Huberman holds a bachelor's degree in
economics and business administration from the Leon Recanati Business School of
Tel-Aviv University.

                                       63
<PAGE>

     DR. RIVI SHERMAN has served as Chief Technology Officer of NICE since
December 2001. From 1997 to 2001, she served as General Manager Advanced
Products Development of Applied Materials (Israel). From 1989 to 1997, Dr.
Sherman held several positions with Orbot Instruments, including Vice President,
Wafer Inspection Product Line .Prior to that she conducted research in the area
of distributed computing in the University of California. Dr. Sherman holds a
bachelor's degree in Mathematics from the Tel Aviv University and a Master's
degree and PhD in Computer Science from the Weizmann Institute of Science. Dr.
Sherman has various publications and patents to her name.

     DAPHNA KEDMI has served as Corporate Vice President, General Counsel and
Corporate Secretary of NICE since February 2000. From 1989 to December 1999, Ms.
Kedmi served as General Counsel to Elisra Electronic Systems Ltd. and then to
Tadiran Ltd., both of which are subsidiaries of Koor Industries Ltd. From 1979
through 1988, Ms. Kedmi was an attorney and then Deputy General Counsel within
the legal Department of the Israel Ministry of Defense. Ms. Kedmi has a
bachelor's degree in law from Tel-Aviv University and is a member of the Israeli
Bar.

     MENI GAL has served as Corporate Vice President, Human Resources since
January 2001. Prior to joining NICE, Mr. Gal served as Director of Human
Resources of Applied Materials Israel since 1999. From 1994 to 1999, Mr. Gal
served as Senior Vice President of Human Resources for Strauss Company, an
international food company. From 1986 to 1994, Mr. Gal held senior management
positions in human resources at Tadiran Communications, a developer of
communications technologies for the defense and military industries. Mr. Gal
holds a bachelor's degree in education and Behavioral Sciences from Tel-Aviv
University.

     YOAV ZALTZMAN has served as Corporate Vice President, Business Operations
of NICE since May 2001 and is now Corporate Vice President, NiceTrack. Prior to
joining NICE, Mr. Zaltzman served as Senior Director of Sales for Applied
Materials Israel since 1997. From 1994 to 1997, Mr. Zaltzman served as General
Manager of Orbot Instruments in Europe, based in Brussels, which was acquired by
Applied Materials in 1997. From 1987 to 1992, Mr. Zaltzman held various sales
and marketing positions for Oracle in Israel. Mr. Zaltzman holds a bachelor's
degree in Computer Sciences and a master's degree in business administration,
both from Tel Aviv University.

     DORON EIDELMAN serves as Executive Vice President, NiceVision since May
2002. Previously, he was COO of AudioCodes, a telecommunications company. From
1992 to 2001, Mr. Eidelman was Executive Vice President and President of the
Display Division of Orbotech and from 1987 to 1992, he held various positions in
Optrotech, the last of which was Vice President. Mr. Eidelman served in an elite
intelligence unit in the IDF and was awarded the prestigious Israel Defense
Award .He holds a bachelor's degree in electronic engineering from the
Technion-Israel Institute of Technology and a master's degree in electronic
engineering from the University of Tel Aviv.

                                       64
<PAGE>

     EYTAN BAR is currently Corporate Vice President Product Lines. From 2000 to
2001, he was Vice President Professional Services and from 2001 to 2002, he
served as Vice President R&D of the Company . Prior to joining NICE, Mr. Bar
held several positions with the STS Group, including General Manager of STS
Software Systems Ltd.

     ZVI BAUM served as Director of Product Management in the CEM Division of
NICE since January 2002. In May 2003 Mr. Baum was promoted to the position of
Corporate VP of Marketing. Before joining NICE, Mr. Baum served as the Managing
Director of Call Vision Israel Ltd - a company that specialized in the
development of advanced web-based quality monitoring solutions for call centers.
Prior to that, he served as the VP of International Sales and Marketing at STS
Software Systems which developed recording solutions and was acquired by NICE at
the end of 1999. Between 1987 and 1998 Mr. Baum worked for a number of American
and European companies in several areas, including technical management,
marketing and channel management. Mr. Baum holds a B.Sc. in Engineering from the
Technion - Israel Institute of Technology and M.Sc. in Computer Science and MBA
- - both from the University of California LA (UCLA).

     DR. SHLOMO SHAMIR has served as President and Chief Executive Officer of
NICE Systems Inc., NICE's wholly owned subsidiary and corporate headquarters in
North America, since April 2001. Dr. Shamir previously served as President and
CEO of CreoScitex America, Inc. from 2000 to April 2001. From 1997 to 2000, Dr.
Shamir served as President and CEO of Scitex America Corp. and from 1994 to
1997, he served as its Corporate Vice President of Operations. Prior to 1994,
Dr. Shamir served in the IDF where he attained the rank of Brigadier General.
Dr. Shamir also built and led the planning division in the IDF headquarters and
served as Israel's military attache to Germany. Dr. Shamir holds a bachelor's
degree in physics from the Technion - Israel Institute of Technology and masters
of science and doctorate degrees in engineering and economic systems from
Stanford University.

     JIM PARK is currently the President of NICE Sytems CTI UK Ltd, NICE's
wholly owned subsidiary and corporate headquarters in EMEA. Mr. Park was
previously CEO of Thales Contact Solutions (Previously Racal Recorders) which
was acquired, by NICE, in Nov 2002. Prior to Joining Racal, in 1998, Mr. Park
held various senior management positions at Mitel Telecom. From 1996 to 1998 he
served as General Manager for Mitel's EMEA switching business, from 1994 to 1996
he was VP of business development, from 1991 to 1994 he was director of
Marketing and from 1982 to 1991 he held various sales management roles, in
Europe, the Middle East and Africa. Mr. Park's early career was spent in various
engineering roles with Siemens UK (1979 to 1982) and British Telecom (1974 to
1979), who sponsored him through college.

     DORON BEN SIRA has served as President of NICE APAC since February 2002.
Mr. Ben-Sira came to NICE from Orbotech, where he served as Vice president of
its Assembly division, based in Hong Kong, from 1998 to 2002, leading all sales,
marketing and customer support activities of that division. Prior to joining
Orbotech, Mr. Ben Sira served from 1996 to 1998 as the East Europe Regional
Director of Cisco Systems, Channel and OEM Director at Siemens Data
communication from 1995 to 1997, based in Munich, and Sales & Marketing Vice
President at Mashov Computers, where he was responsible for all Novell
activities in the Middle East region from 1989 to1995. Mr. Ben-Sira holds a
bachelor's degree in economics and a master's degree in business administration
from Tel Aviv University.

                                       65
<PAGE>

     ERAN PORAT has served as Corporate Controller of NICE since March 2000.
From 1997 to February 2000, Mr. Porat served as Corporate Controller of
Technomatics Technologies Ltd. From 1996 to 1997, he served as Corporate
Controller of Nechushtan Elevators Ltd. Mr. Porat is a CPA and holds a
bachelor's degree in economics and accounting from the University of Tel-Aviv.

COMPENSATION

     The aggregate compensation paid to or accrued on behalf of all our
directors and executive officers as a group (27 persons) during 2002 consisted
of approximately $3.3 million, in salary, fees, bonus, commissions and
directors' fees and $50,000 in amounts set aside or accrued for to provide
pension, retirement or similar benefits, but excluding amounts we expended for
automobiles made available to our officers, expenses (including business travel,
professional and business association dues and expenses) reimbursed to our
officers and other fringe benefits commonly reimbursed or paid by companies in
Israel.

     During 2002, our officers and directors received, in the aggregate, options
to purchase up to 410,000 ordinary shares under our 1995 Stock Option Plan.
These options have an average exercise price of $11.87 and will expire 6 years
after the date the options were granted.

     Compensation and reimbursement for Outside Directors (as described below)
is statutorily determined pursuant to the Israeli Companies Law, 5759-1999, or
the Israeli Companies Law. The statutory rates for Outside Directors is
approximately NIS 46,000 per annum and approximately NIS 1,800 per meeting.
Compensation and reimbursement of all other directors who do not serve as
officers are the same as the statutory rates paid to Outside Directors except
for the chairman and vice chairman of the Board who receive 150% and 137.5% of
the annual amount, respectively. We do not have directors who serve as officers
in the Company.

BOARD PRACTICES

     Our articles of association provide that the number of directors serving on
the board shall be not less than three but shall not exceed 13. Our directors,
other than outside directors, are elected at the annual shareholders meeting to
serve until the next annual meeting or until their earlier death, resignation,
bankruptcy, incapacity or removal by an extraordinary resolution of the general
shareholders meeting. Directors may be re-elected at each annual shareholders
meeting. The board may appoint additional directors (whether to fill a vacancy
or create new directorship) to serve until the next annual shareholders meeting,
provided, however, that the board shall have no obligation to fill any vacancy
unless the number of directors is less than three.

     The board may, subject to the provisions of the Israeli Companies Law,
appoint a committee of the board and delegate to such committee all or any of
the powers of the board as it deems appropriate. Notwithstanding the foregoing,
the board may, at any time, amend, restate or cancel the delegation of any of
its powers to any of its committees. The board has appointed an internal audit
committee, as required under the Israeli Companies Law, that has three members,
an audit committee that has five members and a compensation committee that has
three members.

                                       66
<PAGE>

     OUTSIDE DIRECTORS

     Under the Israeli Companies Law, companies incorporated under the laws of
Israel whose shares have been offered to the public in or outside of Israel are
required to appoint at least two "outside" directors.

     To qualify as an outside director, an individual or his or her relative,
partner, employer or any entity under his or her control, may not have as of the
date of appointment as an outside director, and may not have had during the
previous two years, any affiliation with the company, with any entity
controlling the company on the date of the appointment or with any entity that
is a controlling shareholder, on the date of the appointment or during the
previous two years, is the company or an entity controlling the company. In
general, the term "affiliation" includes:

     o    an employment relationship;
     o    a business or professional relationship maintained on a regular basis;
     o    control; and
     o    service as an office holder.

     No person may serve as an outside director if the person's position or
other activities create, or may create, a conflict of interest with the person's
responsibilities as an outside director or may otherwise interfere with the
person's ability to serve as an outside director.

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

     o    the majority of shares voted at the meeting shall include at least
          one-third of the shares of non-controlling shareholders present at the
          meeting and voting on the matter (without taking into account the
          votes of the abstaining shareholders); or

     o    the total number of shares of non-controlling shareholders voted
          against the election of the outside directors does not exceed one
          percent of the aggregate voting rights in the company.

     The term of an outside director will be three years and may be extended for
an additional three years. Each committee of a company's board of directors
which is empowered to exercise any of the board's powers is required to include
at least one outside director. We intend to take all actions required for us to
comply with the Israeli Companies Law and its requirements for outside
directors.

     Our outside directors were elected at a Special General Meeting held on
December 26, 2001.An outside director is entitled to compensation as provided in
regulations adopted under the Israeli Companies Law and is otherwise prohibited
from receiving any other compensation, directly or indirectly, in connection
with service as director of the company.

                                       67
<PAGE>

     INDEPENDENT DIRECTORS

     We are also subject to the rules of the Nasdaq National Market applicable
to listed companies. Under the Nasdaq rules applicable to us, we are required to
appoint a minimum of two independent directors. The independence standard under
the Nasdaq rules excludes any person who is a current or former employee of a
company or any of its affiliates, as well as any immediate family member of an
executive officer of a company or any of its affiliates. At least two of our
current directors meet the independence standard of the Nasdaq rules.

     AUDIT COMMITTEE AND INTERNAL AUDIT COMMITTEE

     The Israeli Companies Law requires public companies to appoint an internal
audit committee. The role of the internal audit committee under the Israeli
Companies Law is to examine flaws in the business management of the company in
consultation with the internal auditors and the independent accountants, and to
propose remedial measures to the board. The internal audit committee also
reviews interested party transactions for approval as required by law. Under the
Israeli Companies Law, an internal audit committee must consist of at least
three directors, including all of the outside directors. The chairman of the
board of directors, any director employed by or otherwise providing services to
the company on a regular basis, and a controlling shareholder or any relative of
a controlling shareholder, may not be a member of the internal audit committee.

     In addition, under the Nasdaq rules applicable to us, we are required to
maintain an audit committee, comprised of a majority of independent directors.
The responsibilities of the audit committee under the Nasdaq rules include,
among other things, evaluating the independence of a company's outside auditors.

     Pursuant to the Sarbanes-Oxley Act of 2002, the Securities and Exchange
Commission (the "SEC") has issued new rules, which would, among other things,
require Nasdaq to impose independence requirements on each member of the audit
committee. Nasdaq has proposed rules that would comply with the SEC's
requirements and which are expected to be applicable to us in 2004.

     The proposed requirements would implement two basic criteria for
determining independence: (i) audit committee members would be barred from
accepting any consulting, advisory or other compensatory fee from the issuer or
an affiliate of the issuer, other than in the member's capacity as a member of
the board of directors and any board committee, and (ii) audit committee members
of an issuer that is not an investment company may not be an "affiliated person"
of the issuer or any subsidiary of the issuer apart from his or her capacity as
a member of the board and any board committee.

     The SEC has proposed to define "affiliate" for non-investment companies as
"a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified." The term "control" is proposed to be consistent with the other
definitions of this term under the Securities Exchange Act of 1934, as "the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise." A safe harbor has been proposed by the
SEC, under which a person who is not an executive officer, director or 10%
shareholder of the issuer would be deemed not to have control of the issuer.

                                       68
<PAGE>

     Under the final rules adopted by the SEC, an issuer is required to disclose
in its annual report, beginning with the annual report for 2003, whether or not
such issuer has at least one audit committee financial expert. If it does, the
issuer must disclose the name of the expert. If not, the issuer must disclose
why it does not have an audit committee financial expert.

     We intend to continue to take all actions as may be necessary for us to
maintain our compliance with applicable Nasdaq requirements.

     INTERNAL AUDITOR

     Under the Israeli Companies Law, the board of directors must appoint an
internal auditor, proposed by the audit committee. The role of the internal
auditor is to examine, among other matters, whether the company's activities
comply with the law and orderly business procedure. Under the Israeli Companies
Law, the internal auditor may be an employee of the company but may not be an
interested party or office holder, or a relative of any interested party or
office holder, and may not be a member of the company's independent accounting
firm or its representative. We have appointed an internal auditor in accordance
with the requirements of the Israeli Companies Law.

EMPLOYEES

     At December 31, 2002, we had approximately 1076 employees worldwide, which
represented an increase of 29% from year-end 2001.

     The following table sets forth the number of our full-time employees at the
end of each of the last three fiscal years as well as the main category of
activity and geographic location of such employees:

                                       69
<PAGE>
<TABLE>
<CAPTION>

                                                                 AT DECEMBER 31,
           CATEGORY OF ACTIVITY                         2000           2001           2002
          ----------------------------------------   ----------     ----------     ----------
<S>                                                   <C>            <C>             <C>
           Operations..........................          160            90              66
           Customer Support....................          252           224             296
           Sales & Marketing...................          217           171             293
           Research & Development..............          326           232             269
           General & Administrative............          154           115             152
                                                     ----------     ----------     ----------
                TOTAL..........................        1,109           832           1,076
                                                     ==========     ==========     ==========
           GEOGRAPHIC LOCATION
           Israel..............................          738           543             498
           North America.......................          359           260             332
           Europe..............................           12            22             230
           Asia Pacific........................            -             7              16
                                                     ----------     ----------     ----------
                TOTAL..........................        1,109           832           1,076
                                                     ==========     ==========     ==========
</TABLE>

     We also utilize temporary employees in various activities. On average, we
employed approximately 17 such temporary employees and 44 contractor employees
(not included in the numbers set forth above) during 2002.

     Our future success will depend in part upon our ability to attract and
retain highly skilled and qualified personnel. Although competition for such
personnel in Israel is generally intense, we believe that adequate personnel
resources are currently available in Israel to meet our requirements.

     We are not a party to any collective bargaining agreement with our
employees or with any labor organization. However, we are subject to certain
labor related statutes, and to certain provisions of collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the
Coordinating Bureau of Economic Organizations (including the Industrialists'
Association of Israel) that are applicable to our Israeli employees by order of
the Israeli Ministry of Labor and Welfare. These statutes and provisions
principally concern the length of the work day and the work week, minimum wages
for workers, contributions to a pension fund, insurance for work-related
accidents, determination of severance pay and other conditions of employment.
Furthermore, pursuant to such provisions, the wages of most of our employees are
automatically adjusted based on changes in the Israeli consumer price index, or
CPI. The amount and frequency of these adjustments are modified from time to
time.

     Israeli law generally requires the payment by employers of severance pay
upon the death of an employee, his retirement or upon termination of employment
by the employer without due

                                       70
<PAGE>

cause. We currently fund our ongoing severance obligations by making monthly
payments to approved severance funds or insurance policies. Please see Note 2(s)
to our consolidated financial statements. In addition, according to the National
Insurance Law, Israeli employers and employees are required to pay predetermined
sums to the National Insurance Institute, an organization similar to the United
States Social Security Administration. These contributions entitle the employees
to benefits in periods of unemployment, work injury, maternity leave,
disability, reserve military service and bankruptcy or winding-up of the
employer. Since January 1, 1995, such amount also includes payments for national
health insurance. The payments to the National Insurance Institute are equal to
approximately 16.25% of an employee's wages , of which the employee contributes
approximately 66% and the employer contributes approximately 34%.

     EMPLOYMENT AGREEMENTS

     We have employment agreements with our officers. Pursuant to these
employment agreements, each party may terminate the employment for no cause by
giving a 30, 60 or 90 day prior written notice (six months in the case of
certain senior employees). In addition, we may terminate such agreement for
cause with no prior notice. The agreements generally include non-compete and
non-disclosure provisions.

SHARE OWNERSHIP

     As of May 31, 2003, our directors and executive officers beneficially owned
an aggregate of 14,321 ordinary shares, or approximately 0.090% of our
outstanding ordinary shares. Rimon Ben-Shaoul, one of our directors, is deemed
to have beneficial ownership of 600,000 ordinary shares (approximately 3.7% of
our outstanding ordinary shares) held by Koonras Technologies Ltd., of which he
is the Co-Chairman of the Board, President and Chief Executive Officer. Other
than Mr. Ben-Shaoul, no individual director or executive officer beneficially
owns 1% or more of our outstanding ordinary shares.

     As of May 31, 2003, all of our directors and executive officers, in the
aggregate, held options under our stock option plans to purchase up to 1,924,500
ordinary shares.

     The following is a description of each of our option plans, including the
amount of options currently outstanding and the weighted average exercise price.

     On December 9, 1998, our board of directors decided to reduce the exercise
price of all outstanding employee stock options having an original exercise
price above $22.50, excluding options held by members of our board of directors.
The amount of options that were repriced was 1,122,066 and the new exercise
price was set at $22.50, the fair market value of the ordinary shares on such
date. The original exercise price of these options ranged from $33.00 to $42.00.

     1995 STOCK OPTION PLAN

     In 1995, we adopted the NICE-Systems Ltd. 1995 Stock Option Plan, or 1995
Plan, to attract, motivate and retain talented employees by rewarding
performance and encouraging behavior that will improve our profitability. Under
the 1995 Plan, our employees and officers may be granted options to acquire our
ordinary shares. The options to acquire ordinary shares are granted at an
exercise price of not less than the fair market value of the ordinary shares on
the date of the grant, subject to certain exceptions which may be determined by
our board of directors. We have registered, through the filing of registration
statements on Form S-8 with SEC under the Securities Act of 1933, 6,000,000 ADSs
for issuance under the 1995 Plan.

                                       71
<PAGE>

     Under the terms of the 1995 Plan, 25% of each stock option granted becomes
exercisable on each of the first, second, third and fourth anniversaries of the
date of grant so long as the grantee is, subject to certain exceptions, employed
by us at the date the stock option becomes exercisable. As of February 15, 2000,
our board of directors adopted a resolution amending the exercise terms of the
1995 Plan whereby 25% of the stock options granted become exercisable on the
first anniversary of the date of grant and 6.25% becomes exercisable once every
quarter during the subsequent three years. Stock options expire six years after
the date of grant. Stock options are non-transferable except upon the death of
the grantee. When applicable, the options are held by, and registered in the
name of, a trustee for a period of two years after the date of grant in
accordance with Section 102 of the Israeli Income Tax Ordinance.

     Pursuant to the Tax Reform (as defined below) and in order to comply with
the provisions of Section 102 of the Income Tax Ordinance (Amendment No. 132),
5762-2002 (the "Ordinance"), on February 11, 2003 our board of directors adopted
an addendum to our share option plan with respect to options granted as of
January 1, 2003 to grantees who are residents of Israel (the "Addendum"). The
Addendum does not add to nor modify our share option plan in respect of grantees
that are not residents of Israel. On December 19, 2003 the board of directors
resolved to elect the "Capital Gains Route" (as defined in Section 102(b)(2) of
the Ordinance) for the grant of options to Israeli grantees. Generally, subject
to the fulfillment of the provisions of Section 102 of the Ordinance, under the
Capital Gains Route gains realized from the sale of shares issued upon exercise
of options shall be taxed at a rate of only 25% and not at the marginal income
tax rate applicable to the grantee (up to 50%). In general, according to the
Addendum and pursuant to the election of the Capital gains Route by our board of
directors, all options granted to Israeli grantees, shares issued upon exercise
of such options and any bonus shares issued with respect to such shares, shall
be held in trust for the benefit of the grantee and registered in the name of a
trustee appointed by the Company and approved by the Israeli tax authorities.
Such options and shares will, subject to the provisions of Section 102 of the
Ordinance and any regulations, rules or orders promulgated thereunder, be held
in trust for a period of two years from the end of the tax year in which the
options are granted and shall not be released from the trust prior to the
payment of the grantee's tax liabilities. In the event the requirements of
Section 102 for the allocation of options according to the Capital Gains Route
are not met - the options will be regarded as options granted under Section
102(c) of the Ordinance and the applicable marginal income tax rate shall apply.
The Addendum, the trustee and the Company's election of the "Capital Gains
Route" is approved by the Israeli tax authorities.

     The 1995 Plan is generally administered by our board of directors which
determines the grantees under the 1995 Plan and the number of options to be
granted. As of May 31, 2003, options to purchase 3,274,396 ordinary shares were
outstanding under the 1995 Plan at a weighted average exercise price of $35.04

                                       72
<PAGE>

     1997 EXECUTIVE SHARE OPTION PLAN

     In 1996, we adopted the NICE-Systems Ltd. 1997 Executive Share Option Plan,
or 1997 Plan, to provide an incentive to our officers and to our directors who
are also officers by enabling them to share in the future growth of our
business. We have registered, through the filing of registration statements on
Form S-8 with SEC under the Securities Act, 2,000,000 ADSs for issuance under
the 1997 Plan.

     Under the terms of the 1997 Plan, stock options will be exercisable during
a 60-day period ending four years after grant. Notwithstanding the foregoing, if
our year-end earnings per share shall reach certain defined targets, 40% of such
stock options shall become exercisable; if earnings per share shall reach
certain higher defined targets, an additional 30% of such stock options shall
become exercisable; and if earnings per share shall reach certain higher defined
targets, an additional 30% of such stock options shall become exercisable,
provided that with respect to all of the above-referenced periods, our operating
profit shall not be less than 10% of revenues and earnings per share shall
exclude any non-recurring expenses related to mergers and acquisitions.
Notwithstanding the foregoing, none of the stock options shall be exercisable
before the expiration of two years from the date of issuance. When applicable,
the options are held by, and registered in the name of, a trustee for a period
of two years after the date of grant in accordance with Section 102 of the
Israeli Income Tax Ordinance.

     The 1997 Plan is generally administered by our board of directors, which
determines the grantees under the 1997 Plan and the number of options to be
granted. As of May 31, 2003,there were no outstanding options to purchase
ordinary shares under the 1997 Plan. All of the outstanding options under this
plan have expired.

     2001 STOCK OPTION PLAN

     In 2001, we adopted the NICE-Systems Ltd. 2001 Stock Option Plan, or 2001
Plan, for the purpose of providing an incentive to certain employees, directors,
officers and consultants options to acquire our ordinary shares in order to
further the advancement our business. The options to acquire ordinary shares are
granted at an exercise price equal to the closing price of our ADSs as quoted on
the Nasdaq National Market on the most recent date prior to the date of the
resolution of our board of directors to grant the option for which the price was
quoted. We have registered, through the filing of a registration statement on
Form S-8 with SEC under the Securities Act, 4,000,000 ADSs for issuance under
the 2001 Plan.

                                       73
<PAGE>

     Under the terms of the 2001 Plan, one-third of the stock options granted
became exercisable ten months after the date of grant and the remaining
two-thirds will become exercisable on the first and second anniversaries of the
first date of exercise so long as the grantee is, subject to certain exceptions,
employed by us at the date the stock option becomes exercisable. The third
portion of the options granted under this plan may be exercised at the end of
the second anniversary of the first date of exercise if we meet a pre-tax profit
target of 20%, as determined by our board of directors in its discretion. Unless
otherwise determined by our board of directors as of the date of grant, stock
options expire six years after the date of grant. Stock options are
non-transferable except upon the death of the grantee. When applicable, the
options are held by, and registered in the name of, a trustee for a period of
two years after the date of grant in accordance with Section 102 of the Israeli
Income Tax Ordinance.

     The 2001 Plan is generally administered by our board of directors which
determines the grantees under the 2001 Plan and the number of options to be
granted. As of May 31, 2003, options to purchase 2,292,810 ordinary shares were
outstanding under the 2001 Plan at a weighted average exercise price of $12.10.

     2001 STOCK OPTION PLAN FOR TRANSITIONAL EMPLOYEES.

     In 2001, we adopted the NICE-Systems Ltd. 2001 Stock Option Plan for
Transitional Employees, or 2001 Transitional Employees Plan, for the purpose of
providing, during a period of transition during which we terminate or transfer
certain of our activities, certain officers and other employees options to
acquire our ordinary shares. The options to acquire ordinary shares are granted
at an exercise price equal to the closing price of our ADSs as quoted on the
Nasdaq National Market on the most recent date prior to the date of the
resolution of our board of directors to grant the option for which the price was
quoted. We have registered, through the filing of a registration statement on
Form S-8 with SEC under the Securities Act, 200,000 ADSs for issuance under the
2001 Transitional Employees Plan.

     Under the terms of the 2001 Transitional Employees Plan, each stock option
granted generally becomes exercisable upon the optionee's termination of
employment in accordance with the optionee's termination agreement with us and
will remain exercisable until the first to occur of the date which is six months
following the date of such termination and the expiration of the stock option's
term. Unless otherwise determined by our board of directors as of the date of
grant, stock options expire on December 31, 2002. Stock options are
non-transferable except upon the death of the grantee.

     The 2001 Transitional Employees Plan is generally administered by our board
of directors which determines the grantees under the 2001 Transitional Employees
Plan and the number of options to be granted. As of May 31, 2003, there were no
outstanding options to purchase ordinary shares under the 2001 Transitional
Employees Plan. All of the outstanding options under this plan have expired.

                                       74
<PAGE>

     1999 EMPLOYEE STOCK PURCHASE PLAN

     In 1999, we adopted the NICE-Systems Ltd. 1999 Employee Stock Purchase
Plan, or ESPP, in order to provide an incentive to our employees and the
employees of our subsidiaries by providing them with an opportunity to purchase
our ordinary shares through accumulated payroll deductions, and thereby enable
such persons to share in the future growth of our business. We have registered,
through the filing of a registration statement on Form S-8 with SEC under the
Securities Act, 500,000 ADSs for issuance under the ESPP.

     Under the terms of the ESPP, eligible employees (generally, all our
employees and the employees of our eligible subsidiaries who are not directors
or controlling shareholders) may, on January 1 and July 1 of each year in which
the ESPP is in effect, elect to become participants in the ESPP for that
six-month period by filing an agreement with us arranging for payroll deductions
of between 2% and 10% of such employee's compensation for the relevant period.
An employee's election to purchase ordinary shares under the ESPP is subject to
his or her right to withdraw from the ESPP prior to exercise, six months after
the offering date. The election price under the ESPP is 85% of the lowest price
of our ordinary shares as quoted on the Nasdaq National Market on the
commencement date of each offering period or on the semi-annual purchase date.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

MAJOR SHAREHOLDERS

     The following table sets forth certain information with respect to the
beneficial ownership of our ordinary shares as of May 31, 2003 with respect to
each person known to us to be the beneficial owner of 5% or more of our
outstanding ordinary shares. None of our major shareholders has any different
voting rights than any other shareholder.

                                       75
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------ -------------------------------------
                                                                               ------------------------------------
                                                                                    SHARES BENEFICIALLY OWNED
- ------------------------------------------------------------------------------ -------------------------------------
NAME AND ADDRESS                                                                    NUMBER          PERCENT(1)
- ----------------                                                                    ------          ----------

- ------------------------------------------------------------------------------ ------------------ ------------------
<S>                                                                                <C>                  <C>
Bank Leumi                                                                         1,045,420            6.5%
24-32 Yehuda Halevi Street
Tel-Aviv 65546, Israel(2)
- ------------------------------------------------------------------------------ ------------------ ------------------

Bank Hapoalim                                                                       862,292             5.4%
65 Yehuda Halevi Street
Tel Aviv 65227, Israel (3)
- ------------------------------------------------------------------------------ ------------------ ------------------

Thales SA                                                                          2,187,500             14%
173 Boulevard Haussman
Paris 75415, France(4)
- ------------------------------------------------------------------------------ ------------------ ------------------

- ---------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)Based upon 15,831,690 ordinary shares issued and outstanding on June 5,
     2003.

     (2)Based upon the information contained in a report filed with the Tel Aviv
     Stock Exchange on June 5, 2003 by Bank Leumi. Bank Leumi holds the shares
     through several trust funds and provident funds.

     (3) Based upon the information contained in a report filed with the Tel
     Aviv Stock Exchange on June 5, 2003 by Bank Hapoalim. Bank Hapoalim holds
     the shares through several trust funds and provident funds.

     (4) Based on information contained in the Company's files.


     As of May 31, 2003, we had 41 ADS holders of record in the United States,
holding approximately 47% of our outstanding ordinary shares, as reported by The
Bank of New York, the depositary for our ADSs.

     To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government and there are no arrangements
that might result in a change in control of our company.

RELATED PARTY TRANSACTIONS

REGISTRATION RIGHTS AGREEMENT

In November 2002, we consummated an agreement to acquire certain assets and
liabilities of Thales Contact Solutions (or TCS), a developer of customer-facing
technology for public safety, financial trading and customer contact centers,
based in the United Kingdom. TCS was a unit of Thales Group, one of Europe's
premier electronics companies. In connection with the acquisition, we issued
2,187,500 ordinary shares to the Thales Group. In November 2, 2002, we entered
into a Registration Rights Agreement with Thales SA relating to the 2,187,500
ordinary shares issued to the Thales Group. Under the agreement, we agreed to
prepare and file under the Securities Act of 1933 a registration statement
covering the offer and sale of the ordinary shares by June 30, 2003. We agreed
to bear the expense of such registration. For a discussion of the TCS
acquisition, please see "Item 5, Operating and Financial Review."

                                       76
<PAGE>

ITEM 8. FINANCIAL INFORMATION.

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.

     See "Item 18. Financial Statements" and pages F-1 through F-39.

LEGAL PROCEEDINGS.

     We are not involved in any legal proceedings that we believe, individually
or in the aggregate, will have a material adverse effect on our business,
financial condition or results of operation, except as noted below.

DICTAPHONE PATENT INFRINGEMENT CLAIM

     In June 2000, Dictaphone Corporation, one of our competitors, filed a
patent infringement claim relating to certain technology embedded in some of our
products. The claim is for damages for past infringement and enjoinment of any
continued infringement of Dictaphone patents. In the court's discretion, the
damages may be trebled and attorney fees awarded. As a result we might be forced
to pay significant damages and licensing fees, modify our business practices or
even be enjoined from conducting a significant part of our U.S. business. Any
such results could materially harm our business. We believe, however, that we
have a valid defense to this claim and are vigorously defending it. We have
received notification from our insurance company indicating that the claim is
not covered by our insurance policy; however, our insurance company has agreed
to reimburse for us all legal expenses that we are expending in defense of the
claim while reserving its final decision on this matter until the final outcome
of the litigation. The discovery period is closed, dispositive motions have been
filed with the Court, and we are awaiting the Court's decisions on these motions
as well as scheduling for trial.

THE 2001 SECURITIES ACTIONS

     On February 8, 2001, the trading price of our securities dropped, following
our announcements that, among other things, we would be restating our revenue
for fiscal year 1999 and the first three quarters of 2000 and that we were
revising downward our revenue estimates for the final quarter of 2000.
Thereafter, various plaintiffs filed in the United States District Court for the
District of New Jersey fourteen putative class action securities lawsuits
against us and several of our present or former officers and directors. The
first of these actions was commenced on February 13, 2001. All of the actions
have been allocated to the Newark vicinage of the District of New Jersey, and
all have been assigned to the Hon. Joseph A. Greenaway, Jr., U.S.D.J.

     The complaint in each action alleges that we and the individual defendants
violated Section 10(b) of the Exchange Act, 15 U.S.C. ss. 78j(b), and Rule 10b-5
promulgated thereunder. The plaintiffs also attempt to state a "control person"
claim against several of the individual defendants under Section 20(a) of the
Exchange Act, 15 U.S.C. ss. 78t(a). While there are differences among the
fourteen complaints, the plaintiffs essentially contend that we and the
individual defendants misrepresented to investors, either affirmatively or
through omissions, our financial results and the value of our securities. The
plaintiffs seek damages in an unspecified amount. The plaintiffs in each such
action seek to represent a class of investors in our securities throughout a
specified period, approximately from February 2000 to February 2001.

                                       77
<PAGE>

     On April 11, 2001, we and several of the individual defendants successfully
moved to consolidate the various actions under the caption "IN RE: NICE SYSTEMS
LTD. SECURITIES LITIGATION," Master File No. 01-CV-00737 (JAG), and to establish
a schedule for the filing by plaintiffs of an amended consolidated complaint and
our and the individual defendants' response to such complaint.

     By Order dated May 21, 2001, a group of plaintiffs were appointed "lead
plaintiffs" pursuant to the Private Securities Litigation Reform Act of 1995, 15
U.S.C. ss. 78u-4(a)(3)(B). On August 20, 2001, the Lead Plaintiffs filed and
served a Consolidated Amended Class Action Complaint, purporting to bring their
securities claims on behalf of a class of persons who purchased our ADSs between
November 3, 1999, and February 7, 2001. On October 22, 2001, we and the
individual defendants moved to dismiss the consolidated complaint in its
entirety, for failure to state a claim upon which relief could be granted, for
failure to plead fraud with the requisite particularity, and on grounds of FORUM
NON CONVENIENS in favor of proceedings in Israel. Briefing on that motion was
completed on December 27, 2001.

     Before that motion was decided by the Court, the parties to the litigation
entered into a settlement of the claim, without any admission of liability or
wrongdoing on our part, in the amount of ten million dollars, including
attorneys' fees. We received the funds for this settlement through our directors
and officers insurance policy.

     Because the action was brought as a class action, the settlement was
subject to court approval. By Order dated April 7, 2003, the settlement was
approved by the United States District Court for the District of New Jersey,
over the objections of two shareholders. On April 30, 2003, one of those
shareholders, James J. Hayes, appealed from that Order to the United Stated
Court of Appeals for the Third Circuit.

     Class action proceedings were also filed against us in Israel as a result
of the revenue restatement announcement and ensuing decline in the trading price
of our securities. On March 7, 2001, Mr. Volfin, a shareholder, filed a request
for a class action against us and Benjamin Levin, our former Chairman of the
Board, claiming that our financial reports for fiscal year 1999 and the first
three quarters of 2000 did not reflect our actual earnings and were therefore
misleading. The class that the plaintiff requested to represent included all
shareholders that purchased our ordinary shares that are traded on the Tel-Aviv
Stock Exchange between February 16, 2000 and February 8, 2001. The plaintiff
sought damages with respect to each shareholder in the class in an amount equal
to the difference between the purchase price paid for our ordinary shares by
such shareholder and the value of our ordinary shares after our financial
restatement announcement. In March 2002, we agreed to settle this class action
for approximately $4 million, including attorneys fees, without any admission of
liability or wrongdoing on our part. We received the funds for this settlement
through our directors and officers insurance policy.

                                       78
<PAGE>

THE CHAPIEWSKI ACTION

     In April 2000, we acquired all of the stock of CenterPoint Solutions, Inc.,
or CenterPoint, an application developer of Web-enabled solutions for
statistical tracking, digital recording and automated customer surveys for
contact centers, from Douglas Chapiewski, CenterPoint's sole shareholder, in
exchange for $3 million in cash and up to 200,000 ordinary shares, of which
50,000 ordinary shares were placed in escrow as target shares for sales target
to be achieved by December 31, 2000. Following the acquisition, CenterPoint was
merged into a wholly owned subsidiary of ours. The sales target was not achieved
as of December 31, 2000 and we are therefore entitled to receive the escrow
shares.

     By complaint dated March 19, 2002, Mr. Chapiewski filed an action against
us and NICE Centerpoint, in the District Court, City and County of Denver, State
of Colorado, under the caption "CHAPIEWSKI V. NICE SYSTEMS LTD. AND
NICE-CENTERPOINT SOLUTIONS, INC.," Case No. 02 CV 2603. In this complaint, Mr.
Chapiewski alleged that we violated Sections 604(3) and 604(4) of the Colorado
Securities Act, committed common law fraud and negligent misrepresentation, and
breached representations and warranties in the agreement relating to the
acquisition, by misrepresenting to Mr. Chapiewski, either affirmatively or
through omissions, our financial results and the value of our securities. Mr.
Chapiewski also claimed that NICE Centerpoint breached severance provisions of
an employment agreement with him in the amount of $80,000. Mr. Chapiewski sought
damages in an unspecified amount.

     On November 25, 2002 we settled the claim with Mr. Chapiewski, without any
admission of liability or wrongdoing on our part, for an amount of three million
dollars and fifty thousand NICE shares. We are now seeking reimbursement from
our insurance company of the portion of the settlement amount which is, in our
opinion, covered by our Directors and Officers insurance policy

                                       79
<PAGE>

ITEM 9. THE OFFER AND LISTING.

TRADING IN THE ADSS

     Our American Depositary Shares, or ADSs, have been quoted on The Nasdaq
National Market under the symbol "NICEV" from our initial public offering in
January 1996 until April 7, 1999, and thereafter under the symbol "NICE." Prior
to that time, there was no public market for our ordinary shares in the United
States. Each ADS represents one ordinary share. The following table sets forth,
for the periods indicated, the high and low last reported sale prices for our
ADSs.

                                                              ADSS
                                              ----------------------------------
                                                   HIGH                 LOW
                                              --------------      --------------
ANNUAL
        1997 .........................         $    57.500          $    18.625
        1998 .........................              48.750               12.000
        1999 .........................              50.000               21.375
        2000 .........................              99.000               17.500
        2001 .........................              27.750                8.875
        2002 .........................              17.040                6.700

QUARTERLY 2001
- --------------
        First Quarter ................         $    27.750          $     9.813
        Second Quarter ...............              15.270                8.875
        Third Quarter ................              15.600               12.000
        Fourth Quarter ...............              17.750               12.670

QUARTERLY 2002
- --------------
        First Quarter ................         $    17.040          $    13.320
        Second Quarter ...............              14.090               11.670
        Third Quarter ................              12.000                8.390
        Fourth Quarter ...............              11.280                6.700

MONTHLY 2002/2003
- -----------------
         December ....................         $    11.280          $     8.070
         January .....................               9.200                8.340
         February ....................              10.250                8.400
         March .......................              11.130                9.750
         April .......................              12.190               11.100
         May .........................              15.110               12.140

     On June 17, 2003, the last reported sale price of our ADSs was $14.72 per
ADS.

                                       80
<PAGE>

     The Bank of New York is the depositary for our ADSs. Its address is 101
Barclay Street, New York, New York 10286.

TRADING IN THE ORDINARY SHARES

     Our ordinary shares have been listed on the Tel-Aviv Stock Exchange, or
TASE, since 1991. Our ordinary shares are not listed on any other stock exchange
and have not been publicly traded outside Israel (other than through ADSs as
noted above). The table below sets forth the high and low last reported prices
of our ordinary shares (in NIS and dollars) on the TASE. The translation into
dollars is based on the daily representative rate of exchange published by the
Bank of Israel.

<TABLE>
<CAPTION>
                                                                  ORDINARY SHARES
                                               ---------------------------------------------------
                                                         HIGH                         LOW
                                               -----------------------     -----------------------
                                                  NIS            $            NIS             $
                                               ---------      -------      ---------       -------
<S>      <C>                                    <C>            <C>           <C>            <C>
ANNUAL
- ------
         1997.............................      204.00         59.13         62.14          18.01
         1998.............................      178.20         46.89         54.20          14.26
         1999.............................      209.00         50.48         87.90          21.23
         2000.............................      388.00         95.10         79.50          19.49
         2001.............................       97.90         23.68         39.19           9.27
         2002.............................       75.50         16.81         32.02           6.63

QUARTERLY 2001
- --------------
         First Quarter....................       97.90         23.68         42.58          10.10
         Second Quarter...................       63.70         15.41         39.19           9.27
         Third Quarter....................       64.70         15.33         49.81          11.48
         Fourth Quarter...................       74.80         17.64         55.20          12.63

QUARTERLY 2002
- --------------
         First Quarter....................       75.50         16.81         61.20          13.11
         Second Quarter...................       68.70         14.02         56.30          11.45
         Third Quarter....................       57.40         12.24         40.51           8.36
         Fourth Quarter...................       53.00         11.42         32.02           6.63

MONTHLY 2002/2003
- -----------------
         December.........................       53.00         11.42         39.02           8.18
         January..........................       44.56          9.23         37.96           8.01
         February.........................       47.94          9.90         41.70           8.56
         March............................       52.80         11.12         47.98           9.91
         April............................       56.30         12.30         51.70          11.28
         May..............................       65.90         14.76         57.30          12.77
</TABLE>

                                       81
<PAGE>

     As of June 17, 2003, the last reported price of our ordinary shares on the
TASE was NIS 63.90 (or $14.68) per share.

ITEM 10. ADDITIONAL INFORMATION.

MEMORANDUM AND ARTICLES OF ASSOCIATION

ORGANIZATION AND REGISTER

     We are a company limited by shares organized in the State of Israel under
the Israeli Companies Law. We are registered with the Registrar of Companies of
the State of Israel and have been assigned company number 52-0036872.

OBJECTS AND PURPOSES

     Our objects and purposes include a wide variety of business purposes,
including all kinds of research, development, manufacture, distribution, service
and maintenance of products in all fields of technology and engineering and to
engage in any other kind of business or commercial activity. Our objects and
purposes are set forth in detail in Section 2 of our memorandum of association.

     In our annual general meeting of shareholders held on December 24, 2002,we
adopted amended and restated articles of association of the Company.

DIRECTORS

     Our articles of association provide that the number of directors serving on
the board shall be not less than three but shall not exceed 13. Our directors,
other than outside directors, are elected at the annual shareholders meeting to
serve until the next annual meeting or until their earlier death, resignation,
bankruptcy, incapacity or removal by an extraordinary resolution of the general
shareholders meeting. Directors may be re-elected at each annual shareholders
meeting. The board may appoint additional directors (whether to fill a vacancy
or create new directorship) to serve until the next annual shareholders meeting,
provided, however, that the board shall have no obligation to fill any vacancy
unless the number of directors is less than three. Our officers serve at the
discretion of the board.

     The board of directors may meet and adjourn its meetings according to the
Company's needs but at least once every three months. A meeting of the board may
be called at the request of each director. The quorum required for a meeting of
the board consists of a majority of directors. The adoption of a resolution by
the board requires approval by a simple majority of the directors present at a
meeting in which such resolution is proposed. In lieu of a board meeting a
resolution may be adopted if a majority of directors consent in writing.

     Subject to the Companies law, the board may appoint a committee of the
board and delegate to such committee all or any of the powers of the board, as
it deems appropriate. Notwithstanding the foregoing, the board may, at any time,
amend, restate or cancel the delegation of any of its powers to any of its
committees. The board has appointed an internal audit committee which has three
members, an audit committee which has five members and a compensation committee
which has three members.

                                       82
<PAGE>

APPROVAL OF CERTAIN TRANSACTIONS

     The Companies Law codifies the fiduciary duties that "office holders,"
including directors and executive officers, owe to a company. An office holder's
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of
loyalty includes avoiding any conflict of interest between the office holder's
position in the company and his personal affairs, avoiding any competition with
the company, avoiding exploiting any business opportunity of the company in
order to receive personal advantage for himself or others, and revealing to the
company any information or documents relating to the company's affairs which the
office holder has received due to his position as an office holder. Under the
Companies Law, all arrangements as to compensation of office holders who are not
directors, or controlling parties, require approval of the board of directors.
Arrangements regarding the compensation of directors also require audit
committee and shareholder approval.

     The Companies Law requires that an office holder of the company promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, in connection with any existing or proposed
transaction by the company. In addition, if the transaction is an extraordinary
transaction as defined under Israeli law, the office holder must also disclose
any personal interest held by the office holder's spouse, siblings, parents,
grandparents, descendants, spouse's descendants and the spouses of any of the
foregoing. In addition, the office holder must also disclose any interest held
by any corporation in which the office holder is a 5% or greater shareholder,
director or general manager or in which he or she has the right to appoint at
least one director or the general manager. An extraordinary transaction is
defined as a transaction other than in the ordinary course of business,
otherwise than on market terms, or that is likely to have a material impact on
the company's profitability, assets or liabilities.

     In the case of a transaction which is not an extraordinary transaction,
after the office holder complies with the above disclosure requirement, only
board approval is required unless the articles of association of the company
provide otherwise. The transaction must not be adverse to the company's
interest. Furthermore, if the transaction is an extraordinary transaction, then,
in addition to any approval stipulated by the articles of association, it also
must be approved by the company's audit committee and then by the board of
directors, and, under certain circumstances, by a meeting of the shareholders of
the company. An office holder who has a personal interest in a matter that is
considered at a meeting of the board of directors or the audit committee may not
be present at the deliberations or vote on this matter.

     The Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company, which includes a shareholder that holds 25% or
more of the voting rights if no other shareholder owns more than 50% of the
voting rights in the company. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, and
the terms of compensation of a controlling shareholder who is an office holder,
require the approval of the audit committee, the board of directors and the
shareholders of the company by simple majority, provided that either such
majority vote must include at least one-third of the shareholders who have no
personal interest in the transaction and are present at the meeting (without
taking into account the votes of the abstaining shareholders), or that the total
shareholdings of those who have no personal interest in the transaction who vote
against the transaction represent no more than one percent of the voting rights
in the company.

                                       83
<PAGE>

     In addition, a private placement of securities that will increase the
relative holdings of a shareholder that holds five percent or more of the
company's outstanding share capital (assuming the exercise or conversion of all
securities held by such person that are exercisable for or convertible into
shares) or that will cause any person to become, as a result of the issuance, a
holder of more than five percent of the company's outstanding share capital,
requires approval by the board of directors and the shareholders of the company.
However, if the receiving party is not a director in the company, its CEO, or a
controlling shareholder, and will not become a controlling shareholder as a
result of the private placement, shareholder approval is not required if the
allotted securities amount to twenty percent or less, of the company's
outstanding share capital before the allotment.

     Certain types of resolutions, called special or extraordinary resolution,
such as resolutions amending a company's articles of association and regarding
changes in capitalization, mergers, consolidations, windings up, or authorizing
a class of shares with special rights, require approval of the holders of 75% of
the shares represented at the meeting and voting thereon. Under the provisions
of the Companies Law, the shareholders of a company may decide to amend such
company's articles of association to reduce the percentage required for a
special resolution to as low as a simple majority or eliminate the distinction
between ordinary and special resolutions completely; such an amendment must be
adopted by a 75% majority. We have not so amended our articles of association.

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

     o    any amendment to the articles of association;
     o    an increase of the company's authorized share capital;
     o    a merger; or
     o    approval of interested party transactions which require shareholder
          approval.

     In addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder who, pursuant to the provisions of a company's articles of
association, has the power to appoint or prevent the appointment of an office
holder in the company, is under a duty to act with fairness towards the company.
The Companies Law does not describe the substance of this duty.

                                       84
<PAGE>

EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

EXEMPTION OF OFFICE HOLDERS

     Under the Companies Law, an Israeli company may not exempt an office holder
from liability for breach of his duty of loyalty, but may exempt in advance an
office holder from liability to the company, in whole or in part, for a breach
of his duty of care, provided the articles of association of the company allow
it to do so. Our articles of association do not allow us to exempt our office
holders to the fullest extent permitted by law.

OFFICE HOLDER INSURANCE

     Our articles of association provide that, subject to the provisions of the
Companies Law, we may enter into a contract for the insurance of the liability
of any of our office holders with respect to:

     o    a breach of his duty of care to us or to another person,

     o    a breach of his fiduciary duty to us, provided that the office holder
          acted in good faith and had reasonable grounds to assume that his act
          would not prejudice our interests, or

     o    a financial liability imposed upon him in favor of another person
          concerning an act performed by him in his capacity as an office
          holder.

INDEMNIFICATION OF OFFICE HOLDERS

     Our articles of association provide that we may indemnify an office holder
against:

     o    a financial liability imposed on him in favor of another person by any
          judgment, including a settlement or an arbitrator's award approved by
          a court concerning an act performed in his capacity as an office
          holder, and

     o    reasonable litigation expenses, including attorneys' fees, expended by
          the office holder or charged to him by a court, in proceedings
          instituted against him by or on our behalf or by another person, or in
          a criminal charge from which he was acquitted, or a criminal charge in
          which he was convicted for a criminal offense that does not require
          proof of intent, in each case relating to an act performed in his
          capacity as an office holder.

LIMITATIONS ON EXEMPTION, INSURANCE AND INDEMNIFICATION

     The Israeli Companies Law provides that a company may not exempt or
indemnify an office holder, or enter into an insurance contract, which would
provide coverage for any monetary liability incurred as a result of any of the
following:

     o    a breach by the office holder of his duty of loyalty unless, with
          respect to insurance coverage, the office holder acted in good faith
          and had a reasonable basis to believe that the act would not prejudice
          the company;

                                       85
<PAGE>

     o    a breach by the office holder of his duty of care if the breach was
          done intentionally or recklessly;

     o    any act or omission done with the intent to derive an illegal personal
          benefit; or

     o    any fine levied against the office holder.

REQUIRED APPROVALS

     In addition, under the Companies Law, any exemption of, indemnification of,
or procurement of insurance coverage for, our office holders must be approved by
our audit committee and our board of directors and, if the beneficiary is a
director, by our shareholders

MATERIAL CONTRACTS

TCS ACQUISITION

     In November 2002, we consummated an agreement to acquire certain assets and
liabilities of Thales Contact Solutions (or TCS), a developer of customer-facing
technology for public safety, financial trading and customer contact centers,
based in the United Kingdom. TCS was a unit of Thales Group, one of Europe's
premier electronics companies. In connection with the acquisition, we paid an
initial $29.9 million in cash and issued 2,187,500 ordinary shares to Thales
Group at a fair market value of $18.1 million calculated at the date of closing.
As a result, Thales Group holds approximately 14% of the Company's shares and
two Thales executives were elected to the Board of Directors of NICE.

     Under the terms of the agreement, the cash portion of the purchase price
was subject to downward adjustment based on the value of net assets at closing
and the full year 2002 sales of TCS. Based on the actual value of net assets
acquired and 2002 sales of TCS, we reduced the cash portion of the purchase
price as of December 31, 2002 by $12.8 million. This amount is presented on our
balance sheet as a Related Party Receivable. Thus, the adjusted purchase price
paid, including $4.5 million of capitalized acquisition costs, was recorded as
$39.7 million. Of the $12.8 million adjustment referred to above, Thales paid us
$6.6 million in March 2003, and pending agreement on the actual value of net
assets acquired, we expect to recover the outstanding balance during 2003.
Should we and Thales not reach agreement on the net asset value, the matter will
be submitted to binding arbitration in accordance with the terms of the
acquisition agreement..

     Also under the terms of the agreement, contingent cash payments of up to
$10 million in 2003, $7.5 million in 2004, and $7.5 million in 2005 would be due
if certain financial performance criteria are met as part of a three-year
earn-out provision related to the sale of a particular product in 2002 through
2004. The relevant criteria for 2002 were not met and therefore no contingent
payment in respect of 2002 was recorded. We cannot predict with certainty
whether, however we do not believe that, the financial criteria will be met in
years 2003 and 2004. Should any contingent payments be made under the agreement
in the future, the additional consideration when determinable will increase the
purchase price and accordingly additional goodwill will be recorded.

                                       86
<PAGE>

     In the fourth quarter of 2002, we recorded a current liability of $2.8
million and a long-term liability of $13.5 million reflecting obligations under
a long-term contract assumed by NICE in the TCS acquisition. We have entered
into negotiations to amend this contract but there can be no assurance that we
will be successful in these negotiations.

STEVENS ACQUISITION

     On October 31, 2000, we entered into an Asset Purchase Agreement, among us,
our subsidiary Nice Systems, Inc. and Stevens Communications, Inc., or Stevens.
This agreement related to our acquisition of certain assets of Stevens, a
systems distributor, relating to the promotion, distribution, installation and
maintenance of our products in North America, which was consummated in December
2000. Pursuant to the agreement, we acquired the Stevens assets in exchange for
approximately $7.0 million in cash, subject to adjustment, and up to 426,745
ordinary shares, of which 95,804 ordinary shares were placed in escrow as
security for the indemnification obligations of Stevens to us, 186,818 ordinary
shares were placed in escrow as target shares and 38,914 ordinary shares were
placed in escrow for the benefit of certain employees of Stevens who we employed
following the acquisition, which we released to such employees based on their
continued employment by us.

     In October 2001, Stevens and we agreed to settle certain disputes relating
to the Asset Purchase Agreement and provide mutual releases from certain claims
arising under or relating to that agreement. According to the settlement
agreement, Stevens paid us approximately $1.3 million, which represented
collections by Stevens of accounts receivable for assets purchased by us in the
acquisition, less monies owed by us to Stevens for claims under the Asset
Purchase Agreement, certain equipment and services received from Stevens and
fees for use of Stevens' Business Support Center. In addition, Stevens and we
agreed that all of the indemnification and target shares held in escrow pursuant
to the Asset Purchase Agreement would be transferred to Stevens.

CENTERPOINT ACQUISITION

     On February 19, 2000, we entered into an Amended and Restated Agreement and
Plan of Reorganization, among us, CPS Merger Corp., CenterPoint Solutions, Inc.,
or CenterPoint, and Douglas Chapiewski, the sole stockholder of CenterPoint.
This agreement related to our acquisition of all of the stock of CenterPoint, an
application developer of Web-enabled solutions for statistical tracking, digital
recording and automated customer surveys for contact centers, which was
consummated in April 2000. Pursuant to the agreement, we acquired the
CenterPoint stock from Mr. Chapiewski in exchange for $3 million in cash and up
to 200,000 ordinary shares, of which 50,000 ordinary shares were placed in
escrow as target shares for sales target to be achieved by December 31, 2000. We
filed a shelf registration statement on Form F-3 to register the resale by Mr.
Chapiewski of up to 200,000 ADSs, representing the ordinary shares he received
in the transaction. Following the acquisition, CenterPoint was merged into a
wholly owned subsidiary of ours.

                                       87
<PAGE>

     By complaint dated March 19, 2002, Mr. Chapiewski filed an action against
us and NICE Centerpoint, in Colorado alleging that we violated several Colorado
securities laws, committed common law fraud and negligent misrepresentation, and
breached representations and warranties in the agreement relating to the
acquisition, by misrepresenting to Mr. Chapiewski, either affirmatively or
through omissions, our financial results and the value of our securities. Mr.
Chapiewski also claimed that NICE Centerpoint breached severance provisions of
an employment agreement with him in the amount of $80,000. Mr. Chapiewski sought
damages in an unspecified amount. On May 9, 2002, Nice-Centerpoint and we filed
and served an answer to the Mr. Chapiewski's complaint. On November 25, 2002 we
settled the claim with Chapiewski, without any admission of liability or
wrongdoing on our part, for an amount of three million dollars and fifty
thousand of the Company's shares. We are now seeking reimbursement from our
insurance company of the portion of the settlement amount which is, in our
opinion, covered by our Directors and Officers insurance policy.

EXCHANGE CONTROLS

     Holders of ADSs are able to convert dividends and liquidation distributions
into freely repatriable non-Israeli currencies at the rate of exchange
prevailing at the time of repatriation, pursuant to regulations issued under the
Currency Control Law, 5738-1978, provided that Israeli income tax has been
withheld by us with respect to amounts that are being repatriated to the extent
applicable or an exemption has been obtained.

     Our ADSs may be freely held and traded pursuant to the General Permit and
the Currency Control Law. The ownership or voting of ADSs by non-residents of
Israel, except with respect to citizens of countries that are in a state of war
with Israel, are not restricted in any way by the our memorandum of association
or articles of association or by the laws of the State of Israel.

TAXATION

     The following is a discussion of Israeli and United States tax consequences
material to our United States shareholders. The discussion is not intended, and
should not be construed, as legal or professional tax advice and does not
exhaust all possible tax considerations.

     Holders of our ADSs should consult their own tax advisors as to the United
States, Israeli or other tax consequences of the purchase, ownership and
disposition of our ADSs, including, in particular, the effect of any foreign,
state or local taxes.

ISRAELI TAX CONSIDERATIONS

     The following is a summary of the current tax laws of the State of Israel
and certain material Israeli tax considerations as they apply to our United
States shareholders. For a discussion of certain Israeli government programs
benefiting various Israeli businesses, including us, please see "Item 5,
Operating and Financial Review and Prospects."

                                       88
<PAGE>

     TAX REFORM

     On January 1, 2003, the Law for Amendment of the Income Tax Ordinance
(Amendment No.132), 5762-2002, known as the Tax Reform, came into effect,
following its enactment by the Israeli Parliament on July 24, 2002. On December
17, 2002, the Israeli Parliament approved a number of amendments to the tax
reform, which came into effect on January 1, 2003. The tax reform, aimed at
broadening the categories of taxable income and reducing the tax rates imposed
on employment income, introduced the following, among other things:

     o Reduction of the tax rate levied on capital gains (other than gains
     deriving from the sale of listed securities) derived after January 1, 2003,
     to a general rate of 25% for both individuals and corporations. Regarding
     assets acquired prior to January 1, 2003, the reduced tax rate will apply
     to a proportionate part of the gain, in accordance with the holding periods
     of the asset, before or after January 1, 2003, on a linear basis;

     o Imposition of Israeli tax on all income of Israeli residents, individuals
     and corporations, regardless of the territorial source of income, including
     income derived from passive sources such as interest, dividends and
     royalties;

     o Introduction of controlled foreign corporation (CFC) rules into the
     Israeli tax structure. Generally, under such rules, an Israeli resident who
     holds, directly of indirectly,10% or more of the rights in a foreign
     corporation whose shares are not publicly traded, in which more than 50% of
     the rights are held directly or indirectly by Israeli residents, and a
     majority of whose income in a tax year is considered passive income, will
     be liable for tax on the portion of such income attributed to his holdings
     in such corporation, as if such income were distributed to him as a
     dividend; and

     o Imposition of capital gains tax on capital gains realized by individuals
     as of January 1, 2003, from the sale of shares of publicly traded companies
     (such gain was previously exempt from capital gains tax in Israel). For
     information with respect to the applicability of Israeli capital gains
     taxes on the sale of ordinary shares, see "CAPITAL GAINS AND INCOME TAXES
     APPLICABLE TO NON-ISRAELI SHAREHOLDERS" below;

     o Introduction of a new regime for the taxation of shares and options
     issued to employees and officers (including directors).

                                       89
<PAGE>

CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS

     Israeli law generally imposes a capital gains tax on the sale of capital
assets located in Israel, including shares in Israeli companies, by both
residents and non-residents of Israel, unless a specific exemption is available
or unless a tax treaty between Israel and the shareholder's country of residence
provides otherwise. The law distinguishes between real gain and inflationary
surplus. The inflationary surplus is a portion of the total capital gain, which
is equivalent to the increase of the relevant asset's purchase price, which is
attributable to the increase in the Israeli consumer price index between the
date of purchase and the date of sale. The real gain is the excess of the total
capital gain over the inflationary surplus.

     Prior to the tax reform, sales of our ordinary shares by individuals were
generally exempt from Israeli capital gains tax for so long as they were quoted
on Nasdaq or listed on a stock exchange in a country appearing in a list
approved by the Controller of Foreign Currency and we qualified as an Industrial
Company. Pursuant to the tax reform, generally, capital gains tax is imposed at
a rate of 15% on real gains derived on or after January 1, 2003, from the sale
of shares in companies (i) publicly traded on the Tel Aviv Stock Exchange
("TASE") or; (ii) (subject to a necessary determination by the Israeli Minister
of Finance) Israeli companies publicly traded on a recognized stock exchange
outside of Israel (such as NICE). This tax rate does not apply to: (i) dealers
in securities; (ii) shareholders that report in accordance with the Inflationary
Adjustment Law; or (iii) shareholders who acquired their shares prior to an
initial public offering (that are subject to a different tax arrangement). The
tax basis of shares acquired prior to January 1, 2003 will be determined in
accordance with the average closing share price in the three trading days
preceding January 1, 2003. However, a request may be made to the tax authorities
to consider the actual adjusted cost of the shares as the tax basis if it is
higher than such average price.

     Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares publicly traded on a the TASE, and are
exempt from Israeli capital gains tax on any gains derived from the sale of
shares of Israeli companies publicly traded on a recognized stock exchange
outside of Israel, provided however that such capital gains are not derive from
a permanent establishment in Israel and provided that such shareholders did not
acquire their shares prior to an initial public offering. However, non-Israeli
corporations will not be entitled to such exemption if an Israeli resident (i)
has a controlling interest of 25% or more in such non-Israeli corporation, or
(ii) is the beneficiary or is entitled to 25% or more of the revenues or profits
of such non-Israeli corporation, whether directly or indirectly.

     In any event, the provisions of the tax reform shall not effect the
exemption from capital gains tax for gains accrued before January 1, 2003, as
described above.

     Individuals who are non-residents of Israel are subject to a graduated
income tax on income derived or accrued from sources in Israel or received in
Israel. Dividend distributions, other than bonus shares (share dividends), are
subject to a 25% withholding tax (15% in the case of dividends distributed from
taxable income derived from an Approved Enterprise), unless a different rate is
provided in a treaty between Israel and the shareholder's country of residence.
The withheld tax is the final tax in Israel on dividends paid to non-residents.
See "--U.S.-Israel Tax Treaty."

                                       90
<PAGE>

     A non-resident of Israel who has dividend income derived from or accrued in
Israel, from which tax was withheld at source, is generally exempt from the duty
to file tax returns in Israel in respect of such income, provided such income
was not derived from a business conducted in Israel by the taxpayer.

     Residents of the United States generally will have withholding tax in
Israel deducted at source. They may be entitled to a credit or deduction for
United States federal income tax purposes in the amount of the taxes withheld,
subject to detailed rules contained in United States tax legislation.

U.S.-ISRAEL TAX TREATY

     Pursuant to the U.S.-Israel Tax Treaty, which became effective as of
January 1, 1995, the sale, exchange or disposition of ADSs by a person who
qualifies as a resident of the United States within the meaning of, and who is
entitled to claim the benefits afforded to such resident by, the U.S.-Israel Tax
Treaty ("Treaty U.S. Resident") will not be subject to the Israeli capital gains
tax unless such Treaty U.S. Resident holds, directly or indirectly, shares
representing 10% or more of our voting power during any part of the 12-month
period preceding such sale, or exchange or disposition, subject to certain
conditions. A sale, exchange or disposition of ADSs by a Treaty U.S. Resident
who holds, directly or indirectly, shares representing 10% or more of the voting
power of NICE at any time during such preceding 12-month period would be subject
to such Israeli tax, to the extent applicable; however, under the U.S.-Israel
Tax Treaty, the gain would be treated as foreign source income for United States
foreign tax credit purposes and such Treaty U.S. Resident would be permitted to
claim a credit for such taxes against the United States income tax imposed on
such sale, exchange or disposition, subject to the limitations under the United
States federal income tax laws applicable to foreign tax credits.

     Under the U.S.-Israel Treaty, the maximum Israeli withholding tax on
dividends is 25%. Dividends of an Israeli company derived from income of an
Approved Enterprise are subject to a 15% withholding tax under Israeli law. The
U.S.-Israel Tax Treaty further provides for a 12.5% Israeli dividend withholding
tax on dividends paid to a United States corporation owning 10% or more of an
Israeli company's voting stock for, in general, the current and preceding tax
years of the Israeli company provided such United States corporation meets
certain limitations concerning the amount of its dividend and interest income.
The lower 12.5% rate applies only on dividends from income not derived from an
Approved Enterprise in the applicable period and does not apply if the company
has certain amounts of passive income. See "--Capital Gains and Income Taxes
Applicable to Non-Israeli Shareholders."

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     The following is a summary of certain material U.S. Federal income tax
consequences that apply to U.S. Holders who hold ADSs as capital assets. This
summary is based on U.S. Federal income tax laws, regulations, rulings and
decisions in effect as of the date of this annual report, all of which are
subject to change at any time, possibly with retroactive effect. This

                                       91
<PAGE>

summary does not address all tax considerations that may be relevant with
respect to an investment in ADSs. This summary does not account for the specific
circumstances of any particular investor such as

     o    broker-dealers;

     o    financial institutions;

     o    certain insurance companies;

     o    investors liable for alternative minimum tax;

     o    tax-exempt organizations;

     o    investors that actually or constructively own 10 percent or more of
          our voting shares;

     o    investors holding ADSs as part of a straddle or a hedging or
          conversion transaction; and

     o    investors that are treated as partnerships or other pass through
          entities for U.S. federal income tax purposes.

     This summary does not address the effect of any U.S. Federal taxation other
than U.S. Federal income taxation. In addition, this summary does not include
any discussion of state, local or foreign taxation.

     You are urged to consult your tax advisors regarding the foreign and United
States Federal, state and local tax considerations of an investment in ADSs. For
purposes of this summary, a U.S. Holder is:

     o    an individual who is a citizen or, for U.S. Federal income tax
          purposes, a resident of the United States;

     o    a corporation or other entity taxable as a corporation created or
          organized in or under the laws of the United States or any political
          subdivision thereof;

     o    an estate whose income is subject to U.S. Federal income tax
          regardless of its source; or

     o    a trust if:

          (a) a court within the United States is able to exercise primary
     supervision over administration of the trust; and

          (b) one or more United States persons have the authority to control
     all substantial decisions of the trust.

   TAXATION OF DIVIDENDS

     Subject to the discussion below under "passive foreign investment
companies," the gross amount of any distributions that you receive with respect
to ADSs, including the amount of any Israeli taxes withheld from these
distributions, will constitute dividends for U.S. Federal income tax purposes,
to the extent of our current and accumulated earnings and profits as determined
for

                                       92
<PAGE>

U.S. Federal income tax principles. You will be required to include this amount
of dividends in gross income as ordinary income on the date such dividend is
actually or constructively received. Distributions in excess of our earnings and
profits will be treated as a non-taxable return of capital to the extent of your
tax basis in the ADSs and, to the extent in excess of your tax basis, will be
treated as capital gain. See "--Dispositions of ADSs" below for the discussion
on the taxation of capital gains. Dividends generally will not qualify for the
dividends-received deduction available to corporations.

     Dividends that we pay in NIS, including the amount of any Israeli taxes
withheld from these dividends, will be included as income to you in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the day
such dividends are distributed. If you convert dividends paid in NIS into U.S.
Dollars on the day the dividends are distributed, you generally should not be
required to recognize foreign currency gain or loss with respect to such
conversion. Any gain or loss resulting from a subsequent exchange of such NIS
generally will be treated as U.S. source ordinary income or loss.

     Subject to certain conditions and limitations, you may elect to claim a
credit against your U.S. Federal income tax liability for Israeli tax withheld
from dividends received in respect of the ADSs. Dividends generally will be
treated as foreign-source passive income or financial services income for United
States foreign tax credit purposes. The rules relating to the determination of
the foreign tax credit are complex, and you should consult your personal tax
advisors to determine whether and to what extent you would be entitled to this
credit. Alternatively, you may elect to claim a U.S. tax deduction, instead of a
foreign tax credit, for such Israeli tax, but only for a year in which you elect
to do so with respect to all foreign income taxes. DISPOSITIONS OF ADSS

     If you sell or otherwise dispose of your ADSs, you will recognize gain or
loss for U.S. Federal income tax purposes in an amount equal to the difference
between the amount realized on the sale or other disposition and your adjusted
tax basis in your ADSs. Subject to the discussion below under the heading
"--Passive Foreign Investment Companies," such gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss if you had held
the ADSs for more than one year at the time of the sale or other disposition.
Long-term capital gains realized by individual U.S. Holders generally are
subject to a lower marginal U.S. federal income tax rate than ordinary income.
Under most circumstances, any gain that you recognize on the sale or other
disposition of ADSs will be U.S.-source for purposes of the foreign tax credit
limitation; and losses recognized will be allocated against U.S. source income.

     PASSIVE FOREIGN INVESTMENT COMPANIES

     For U.S. Federal income tax purposes, we will be considered a passive
foreign investment company, or PFIC, for any taxable year in which either 75% or
more of our gross income is passive income, or at least 50% of the average value
of all of our assets for the taxable year produce or are held for the production
of passive income. For this purpose, passive income includes dividends,
interest, royalties, rents, annuities and the excess of gain over losses from
the disposition of assets which produce passive income. If we were determined to
be a PFIC for U.S. Federal income tax purposes, highly complex rules would apply
to U.S. Holders owning ADSs. Accordingly, you are urged to consult your tax
advisors regarding the application of such rules.

                                       93
<PAGE>

     If we are treated as a PFIC for any taxable year,

     o    you would be required to allocate income recognized upon receiving
          certain dividends or gain recognized upon the disposition of ADSs
          ratably over your holding period for such ADSs,

     o    the amount allocated to each year during which we are considered a
          PFIC other than the year of the dividend payment or disposition would
          be subject to tax at the highest individual or corporate tax rate, as
          the case may be, and an interest charge would be imposed with respect
          to the resulting tax liability allocated to each such year,

     o    gain recognized upon the disposition of ADSs would be taxable as
          ordinary income and

     o    you would be required to make an annual return on IRS Form 8621
          regarding distributions received with respect to ADSs and any gain
          realized on your ADSs.

     One method to avoid the aforementioned treatment is to make a timely
mark-to-market election in respect of your ADSs. If you elect to mark-to-market
your ADSs, you will generally include in income any excess of the fair market
value of the ADSs at the close of each tax year over your adjusted basis in the
ADSs. If the fair market value of the ADSs had depreciated below your adjusted
basis at the close of the tax year, you may generally deduct the excess of the
adjusted basis of the ADSs over its fair market value at that time. However,
such deductions generally would be limited to the net mark-to-market gains, if
any, that you included in income with respect to ADSs in prior years. Income
recognized and deductions allowed under the mark-to-market provisions, as well
as any gain or loss on the disposition of ADSs with respect to which the
mark-to-market election is made, is treated as ordinary income or loss.

     Based on our income, assets and activities for the year 2002, we believe
that we were not a PFIC for that year, nor do we expect to become a PFIC in the
foreseeable future. However, there can be no assurances that we will not be
treated as a PFIC for that year or any taxable year. If we are or become a PFIC
for any taxable year included in your holding period, we generally will remain a
PFIC for all subsequent taxable years with respect to your holding of our ADSs.

     YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE POSSIBILITY OF US
BEING CLASSIFIED AS A PFIC AND THE POTENTIAL TAX CONSEQUENCES ARISING FROM THE
OWNERSHIP AND DISPOSITION (DIRECTLY OR INDIRECTLY) OF AN INTEREST IN A PFIC.

     BACKUP WITHHOLDING AND INFORMATION REPORTING

     Payments in respect of ADSs may be subject to information reporting to the
U.S. Internal Revenue Service and to U.S. backup withholding tax. Backup
withholding will not apply, however, if you furnish a correct taxpayer
identification number and make any other required certification or are otherwise
exempt from backup withholding. Generally, you will provide such certification
on Form W-9 (Request for Taxpayer Identification Number and Certification).

                                       94
<PAGE>

DOCUMENTS ON DISPLAY

     We are subject to certain of the information reporting requirements of the
Securities and Exchange Act of 1934, as amended. We, as a "foreign private
issuer" are exempt from the rules and regulations under the Securities Exchange
Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the
Securities Exchange Act, with respect to their purchase and sale of our shares.
In addition, we are not required to file reports and financial statements with
the Securities and Exchange Commission as frequently or as promptly as U.S.
companies whose securities are registered under the Securities Exchange Act.
However, we will file with the Securities and Exchange Commission an annual
report on Form 20-F containing financial statements audited by an independent
accounting firm. We will also furnish quarterly reports on Form 6-K containing
unaudited financial information after the end of each of the first three
quarters.

     You may read and copy any document we file with the SEC at its public
reference facilities at, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, IL
60661-2511. You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of this web site is
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities. In addition,
our ADSs are quoted on the Nasdaq Stock Market, so our reports and other
information can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

GENERAL

     Market risks relating to our operations result primarily from weak economic
conditions in the markets in which we sell our products and changes in interest
rates and exchange rates. To manage the volatility related to the latter
exposure, we may enter into various derivative transactions. Our objective is to
reduce, where it is deemed appropriate to do so, fluctuations in earnings and
cash flows associated with changes in currency exchange rates. It is our policy
and practice to use derivative financial instruments only to manage exposures.
We do not use financial instruments for trading purposes and are not a party to
any leveraged derivative.

     FOREIGN CURRENCY RISK. We conduct our business primarily in U.S. dollars
but also in the currencies of the United Kingdom, Canada, the European Union and
Israel. Thus, we are exposed to foreign exchange movements, primarily in UK,
European and Israel currencies. We monitor foreign currency exposure and, from
time to time, may enter into various contracts to preserve the value of sales
transactions and commitments.

                                       95
<PAGE>

     INTEREST RATE RISK. We invest in investment-grade U.S. corporate bonds and
dollar deposits with FDIC-insured U.S. banks. Since these investments carry
fixed interest rates and since our policy and practice is to hold these
investments to maturity, interest income over the holding period is not
sensitive to changes in interest rates. As of December 31, 2002, we had no other
exposure to changes in interest rates and had no interest rate derivative
financial instruments outstanding.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

          Not Applicable.



                                       96
<PAGE>

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

              Not Applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS.

              Not Applicable.

ITEM 15. CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, NICE carried out an
evaluation under the supervision and with the participation of NICE's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of NICE's disclosure control
and procedures pursuant to Rule 13a-14 under the Securities Act of 1934. Based
upon that evaluation, NICE's Chief Executive Officer and Chief Financial Officer
concluded that NICE's disclosure controls and procedures are effective in timely
alerting them to material information relating to NICE (including its
consolidated subsidiaries) required to be included in NICE's periodic SEC
filings. Since the date of the evaluation, there have been no significant
changes in our internal controls or in other factors that could significantly
affect the controls. We intend to continue to refine our internal controls on an
ongoing basis as we deem appropriate with a view towards making improvements.

ITEM 16. [RESERVED]

                                       97
<PAGE>

                                    PART III

ITEM 17. FINANCIAL STATEMENTS.

              Not Applicable.

ITEM 18. FINANCIAL STATEMENTS.

              See pages F-1 through F-42, incorporated herein by reference.

ITEM 19. EXHIBITS.

<TABLE>
<CAPTION>

EXHIBIT NO.        DESCRIPTION
- -----------        -----------
<S>            <C>
   1.1*        Memorandum of Association of NICE-Systems Ltd. (together with an English translation thereof) (filed
               as Exhibit 3.1 to NICE-Systems Ltd.'s Registration Statement on Form F-1 (Registration No. 333-99640)
               filed with the Commission on November 21, 1995, and incorporated herein by reference)

   1.2         Articles of Association of  NICE-Systems Ltd. approved by the Annual General Meeting of the Company's
               shareholders held on December 24, 2002.

   2.1*        Form of Share Certificate (filed as Exhibit 4.1 to Amendment No. 1 to NICE-Systems Ltd.'s
               Registration Statement on Form F-1 (Registration No. 333-99640) filed with the Commission on December
               29, 1995, and incorporated herein by reference)

   2.2*        Form of Deposit Agreement including Form of ADR
               Certificate (filed as Exhibit A to NICE-Systems Ltd.'s
               Registration Statement on Form F-6 (Registration No.
               333-13518) filed with the Commission on May 17, 2001, and
               incorporated herein by reference)

   4.1*        Amended and Restated Agreement and Plan of Reorganization, dated February 19, 2000, by and among
               NICE-Systems Ltd., CPS Merger Corp., CenterPoint Solutions, Inc. and Douglas Chapiewski. (filed as
               Exhibit 2 to NICE-Systems Ltd.'s Annual Report on Form 20-F (File No. 000-27466) filed with the
               Commission on May 26, 2000, and incorporated herein by reference)

   4.2*        Asset Purchase Agreement, dated October 31, 2000, by and among NICE-Systems Ltd., NICE Systems, Inc.
               and Stevens Communications Inc. (filed as Exhibit 10.1 to NICE-Systems Ltd.'s Registration Statement
               on Form F-3 (Registration No. 333-12996) filed with the Commission on December 18, 2000, and
               incorporated herein by reference)

   4.3         Sales and Purchase Agreement dated July 30, 2002 by and
               among NICE-Systems Ltd, NICE CTI Systems UK Ltd., NICE
               Systems SARL, NICE Systems GmbH, NICE Systems, Inc. and
               Thales SA.

   4.4         Registration Rights Agreement between NICE-Systems Ltd. and Thales SA.

   4.5         Manufacturing Outsourcing Agreement between Nice Systems Ltd. dated January 21, 2002 by and among
               Nice Systems Ltd. and Flextronics Israel Ltd.

   4.6         Manufacturing Agreement dated November 5,2001 by and among Thales Contact Solutions Ltd. And Instem
               Technologies Ltd.

   8.1         List of significant subsidiaries
</TABLE>

                                       98
<PAGE>
<TABLE>
<CAPTION>
<S>            <C>
  10.1         Consent Kost, Forer & Gabbay, a member of Ernst & Young Global.

  10.2         Certification of Haim Shani pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.

  10.3         Certification of Lauri Hanover pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002.
</TABLE>

  *   Previously Filed


                                       99

<PAGE>

                       NICE SYSTEMS LTD. AND SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2002


                            U.S. DOLLARS IN THOUSANDS




                                      INDEX


                                                               PAGE
                                                        ------------------
REPORT OF INDEPENDENT AUDITORS                                 F-2

CONSOLIDATED BALANCE SHEETS                                 F-3 - F-4

CONSOLIDATED STATEMENTS OF OPERATIONS                          F-5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                  F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS                       F-7 - F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  F-11 - F-42




                               - - - - - - - - - -

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                NICE SYSTEMS LTD.


       We have audited the accompanying consolidated balance sheets of NICE
Systems Ltd. ("the Company") and subsidiaries as of December 31, 2001 and 2002,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

       We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

       In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company and subsidiaries as of December 31, 2001 and 2002, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.

       As discussed in Note 2l to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" effective January 1, 2002.



                                                          /s/ Kost Forer & Gabay
                                                          ----------------------


Tel-Aviv, Israel                                  KOST FORER & GABBAY
May 28, 2003                               A Member of Ernst & Young Global

                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


                                                                                                DECEMBER 31,
                                                                                   --------------------------------------
                                                                                         2001                 2002
                                                                                   -----------------    -----------------
     ASSETS
<S>                                                                                 <C>                  <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                        $      25,256        $      19,281
   Short-term bank deposits                                                                   311                  208
   Marketable securities                                                                   29,270               33,853
   Trade  receivables  (net of allowance  for doubtful  accounts of $ 3,146
     and $6,010 in 2001 and 2002, respectively)                                            28,435               45,863
   Unbilled receivables                                                                     6,574                7,495
   Other receivables and prepaid expenses                                                   5,465                8,234
   Related party receivables                                                                    -               12,804
   Inventories                                                                             11,057               13,480
                                                                                   -----------------    -----------------

TOTAL current assets                                                                      106,368              141,218
                                                                                   -----------------    -----------------

LONG-TERM INVESTMENTS:
   Long-term marketable securities                                                         34,176               15,247
   Investment in affiliates                                                                 1,429                1,200
   Severance pay fund                                                                       5,357                5,490
   Long-term receivables and prepaid expenses                                                 471                  888
                                                                                   -----------------    -----------------

TOTAL long-term investments                                                                41,433               22,825
                                                                                   -----------------    -----------------

PROPERTY AND EQUIPMENT, NET                                                                22,111               24,345
                                                                                   -----------------    -----------------

INTANGIBLE ASSETS, NET                                                                     11,900               20,483
                                                                                   -----------------    -----------------

GOODWILL                                                                                   28,200               27,417
                                                                                   -----------------    -----------------

TOTAL assets                                                                        $     210,012        $     236,288
                                                                                   =================    =================



The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                               - F-3 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)


                                                                                                DECEMBER 31,
                                                                                   --------------------------------------
                                                                                         2001                 2002
                                                                                   -----------------    -----------------
<S>                                                                                 <C>                  <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:
   Short-term bank credit                                                           $           -        $          24
   Trade payables                                                                          11,123               16,129
   Accrued expenses and other liabilities                                                  25,314               45,859
                                                                                   -----------------    -----------------

TOTAL current liabilities                                                                  36,437               62,012
                                                                                   -----------------    -----------------

LONG-TERM LIABILITIES:
   Accrued severance pay                                                                    6,543                6,240
   Other long-term liabilities                                                                 14               13,500
                                                                                   -----------------    -----------------

TOTAL long-term liabilities                                                                 6,557               19,740
                                                                                   -----------------    -----------------

 COMMITMENTS AND CONTINGENT LIABILITIES

 SHAREHOLDERS' EQUITY:
   Share capital-
     Ordinary shares of NIS 1 par value:
       Authorized: 50,000,000 shares as of December 31, 2001 and 2002;
       Issued and  outstanding:  13,273,798 and 15,704,425  shares as of
              December 31, 2001 and 2002, respectively                                       4,398                4,908
   Additional paid-in capital                                                              192,845              213,003
   Deferred stock compensation                                                                 (24)                 (12)
   Accumulated other comprehensive income (loss)                                               (38)                 782
   Accumulated deficit                                                                     (30,163)             (64,145)
                                                                                   -----------------    -----------------

TOTAL shareholders' equity                                                                 167,018              154,536
                                                                                   -----------------    -----------------

TOTAL liabilities and shareholders' equity                                          $      210,012       $      236,288
                                                                                   =================    =================



The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-4 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)


                                                                                  YEAR ENDED DECEMBER 31,
                                                                -----------------------------------------------------------
                                                                      2000                 2001                 2002
                                                                -----------------   ------------------   ------------------
<S>                                                              <C>                 <C>                  <C>
 Revenues
   Products                                                      $*)         -        $     112,634       $      134,783
   Services                                                       *)         -               14,474               27,722
                                                                -----------------   ------------------   ------------------

 Total revenues                                                        153,163              127,108              162,505
                                                                -----------------   ------------------   ------------------


 Cost of revenues
   Products                                                       *)         -               54,321               58,693
   Services                                                       *)         -               19,446               26,054
                                                                -----------------   ------------------   ------------------

 Total cost of revenues                                                 73,554               73,767               84,747
                                                                -----------------   ------------------   ------------------

 Gross profit                                                           79,609               53,341               77,758
                                                                -----------------   ------------------   ------------------

 Operating expenses:
    Research and development, net                                       19,502               19,190               17,925
    Selling and marketing                                               35,448               35,046               40,494
    General and administrative                                          28,300               27,143               23,806
    Amortization of acquired intangible assets,
      restructuring expenses, in-process research and
      development and goodwill impairment                                7,646               17,967               29,092
                                                                -----------------   ------------------   ------------------

 TOTAL operating expenses                                        9       0,896               99,346              111,317
                                                                -----------------   ------------------   ------------------

 Operating loss                                                        (11,287)             (46,005)             (33,559)
 Financial income, net                                                   6,188                4,254                3,992
 Other income (expenses), net                                               53               (4,846)              (4,065)
                                                                -----------------   ------------------   ------------------

 Loss before taxes on income                                            (5,046)             (46,597)             (33,632)
 Taxes on income                                                           273                  198                  350
                                                                -----------------   ------------------   ------------------

 Net loss                                                        $      (5,319)      $      (46,795)      $      (33,982)
                                                                =================   ==================   ==================

 Basic and diluted net loss per share                            $       (0.43)      $        (3.59)      $        (2.46)
                                                                =================   ==================   ==================



*) Not available.

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-5 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
                                                                                                              ACCUMULATED
                                                                             ADDITIONAL       DEFERRED           OTHER
                                                              SHARE           PAID-IN           STOCK        COMPREHENSIVE
                                                             CAPITAL          CAPITAL       COMPENSATION     INCOME (LOSS)
                                                          ---------------   -------------   --------------   ---------------

<S>                                                        <C>               <C>             <C>              <C>
Balance as of January 1, 2000                              $     4,062       $  153,160      $      (103)     $         -
  Issuance of shares of ESPP                                         7              934                -                -
  Issuance of shares in respect of the acquisition of CPS           37            9,349                -                -
  Issuance of shares in respect of the acquisition of SCI           54           10,267                -                -
  Deferred stock compensation                                        -               72              (72)               -
  Amortization of deferred stock compensation                        -                -              128                -
  Exercise of share options and warrants                           153           13,897                -                -
  Comprehensive loss:
    Net loss                                                         -                -                -                -
                                                          ---------------   --------------  --------------   ---------------
  Total comprehensive loss


Balance as of December 31, 2000                                  4,313          187,679              (47)               -
  Issuance of shares of ESPP                                        31            1,408                -                -
  Issuance of shares related to a settlement agreement
    in respect of the acquisition of SCI                            46            3,345                -                -
  Amortization of deferred stock compensation                        -                -               23                -
  Exercise of share options                                          8              413                -                -
  Comprehensive loss:
    Unrealized gains (losses) on derivative
      instruments, net                                               -                -                -              (38)
    Net loss                                                         -                -                -                -
                                                          ---------------   --------------  --------------   ---------------
Total comprehensive loss


Balance as of December 31, 2001                                  4,398          192,845              (24)             (38)
  Issuance of shares of ESPP                                        28            1,355                -                -
  Issuance of shares in respect of settlement agreement             11              458                -                -
  Issuance of shares in respect of the acquisition of TCS          458           17,593                -                -
  Issuance of shares in respect of the acquisition of SCI        *)  -               29                -                -
  Amortization of deferred stock compensation                        -                -               12                -
  Exercise of share options                                         13              723                -                -
  Comprehensive loss:
    Foreign currency translation adjustments                         -                -                -              793
    Unrealized gains (losses) on derivative
        instruments, net                                             -                -                -               27
    Net loss                                                         -                -                -                -
                                                          ---------------   --------------  --------------   ---------------
Total comprehensive loss
Balance as of December 31, 2002                            $     4,908       $  213,003      $       (12)     $       782
                                                          ===============   ==============  ==============   ===============
  Accumulated unrealized losses on  derivative
    instruments                                                                                               $       (11)
  Accumulated foreign currency translation adjustments                                                                793
                                                                                                             ---------------
  Accumulated other comprehensive income as of
    December 31, 2002                                                                                         $       782
                                                                                                             ===============

(CONTINUED)

                                                             RETAINED
                                                             EARNINGS           TOTAL             TOTAL
                                                           (ACCUMULATED     COMPREHENSIVE     SHAREHOLDERS'
                                                             DEFICIT)            LOSS             EQUITY
                                                          ---------------   ---------------  -----------------

Balance as of January 1, 2000                               $   21,951                          $    179,070
  Issuance of shares of ESPP                                         -                                   941
  Issuance of shares in respect of the acquisition of CPS            -                                 9,386
  Issuance of shares in respect of the acquisition of SCI            -                                10,321
  Deferred stock compensation                                        -                                     -
  Amortization of deferred stock compensation                        -                                   128
  Exercise of share options and warrants                             -                                14,050
  Comprehensive loss:
    Net loss                                                    (5,319)      $    (5,319)             (5,319)
                                                          ---------------   ---------------   ----------------
  Total comprehensive loss                                                   $    (5,319)
                                                                            ===============

Balance as of December 31, 2000                                 16,632                               208,577
  Issuance of shares of ESPP                                         -                                 1,439
  Issuance of shares related to a settlement agreement
    in respect of the acquisition of SCI                             -                                 3,391
  Amortization of deferred stock compensation                        -                                    23
  Exercise of share options                                          -                                   421
  Comprehensive loss:
    Unrealized gains (losses) on derivative
      instruments, net                                               -       $       (38)                (38)
    Net loss                                                   (46,795)          (46,795)            (46,795)
                                                          ---------------   ---------------   ----------------
Total comprehensive loss                                                     $   (46,833)
                                                                            ===============

Balance as of December 31, 2001                                (30,163)                               167,018
  Issuance of shares of ESPP                                         -                                  1,383
  Issuance of shares in respect of settlement agreement              -                                    469
  Issuance of shares in respect of the acquisition of TCS            -                                 18,051
  Issuance of shares in respect of the acquisition of SCI            -                                     29
  Amortization of deferred stock compensation                        -                                     12
  Exercise of share options                                          -                                    736
  Comprehensive loss:
    Foreign currency translation adjustments                         -       $       793                  793
    Unrealized gains (losses) on derivative
        instruments, net                                             -                27                   27
    Net loss                                                   (33,982)          (33,982)             (33,982)
                                                          ---------------   ---------------   ----------------
Total comprehensive loss
Balance as of December 31, 2002                             $  (64,145)      $   (33,162)      $      154,536
                                                          ===============   ===============   ================
  Accumulated unrealized losses on  derivative
    instruments
  Accumulated foreign currency translation adjustments

  Accumulated other comprehensive income as of
    December 31, 2002

*) Represents an amount lower than $ 1.

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-6 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


                                                                                       YEAR ENDED DECEMBER 31,
                                                                        ---------------------------------------------------
                                                                             2000              2001              2002
                                                                        ----------------  ----------------  ---------------

<S>                                                                      <C>               <C>               <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                             $     (5,319)     $    (46,795)     $    (33,982)
    Adjustments required to reconcile net loss to net cash provided
      by (used in) operating activities:
      Depreciation and amortization                                            11,725            15,266            15,665
      Write-off of acquired in-process research and development                 6,786                 -             1,270
      Stock compensation in respect of SCI acquisition                              -               476                 -
      Stock compensation in respect of CPS settlement                               -                 -               469
      Amortization of deferred stock compensation                                 128                23                12
      Accrued severance pay, net                                                  899              (330)             (436)
      Loss on disposal of property and equipment and goodwill
        impairment in respect of restructuring                                      -             3,062                 -
      Goodwill impairment                                                           -                 -            28,260
      Impairment of investment in affiliate                                         -                 -               229
      Amortization of discount (premium) and accrued interest on
        held-to-maturity marketable securities                                   (345)              183               915
      Loss on sale of assets of Dees                                                -               281                 -
      Decrease (increase) in trade and unbilled receivables                   (12,968)           12,459            (2,146)
      Decrease (increase) in other receivables and prepaid expenses               (82)            6,512            (1,254)
      Decrease (increase) in inventories                                      (10,006)            9,635             4,510
      Increase in long-term prepaid expenses                                        -              (471)             (446)
      Increase (decrease) in trade payables                                     1,438            (1,527)            3,199
      Increase in accrued expenses and other liabilities                        5,729             3,392             3,533
      Other                                                                       (53)              113               315
                                                                        ----------------  ----------------  ---------------

  Net cash provided by (used in) operating activities                          (2,068)            2,279            20,113
                                                                        ----------------  ----------------  ---------------



The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-7 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


                                                                                   YEAR ENDED DECEMBER 31,
                                                                  ----------------------------------------------------------
                                                                        2000                2001                 2002
                                                                  -----------------   -----------------   ------------------
<S>                                                                <C>                 <C>                 <C>
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                   (14,161)            (7,623)             (5,439)
    Proceeds from sale of property and equipment                             394              1,301                 557
    Purchase of intangible assets                                              -                (25)               (610)
    Investment in held-to-maturity marketable securities                 (45,138)           (48,601)            (16,936)
    Proceeds from maturity of held-to-maturity marketable
      securities                                                          38,525             39,977              29,492
    Proceeds from sale of a held-to-maturity marketable security               -                  -                 820
    Investment in short-term bank deposits                               (31,028)              (384)               (150)
    Proceeds from short-term bank deposits                                49,454             24,448                 265
    Investment in affiliates                                              (1,200)                 -                   -
    Payment for the acquisition of CPS (a)                                (3,189)                 -                   -
    Payment for the acquisition of assets and liabilities  of
      SCI (b)                                                             (6,960)                 -                   -
    Proceeds from sale of assets of Dees (c)                                   -                255                   -
    Payment for the acquisition of TCS (d)                                     -                  -             (31,480)
    Decrease in accrued acquisition costs                                      -             (1,436)               (214)
    Capitalization of software development costs                          (4,730)            (5,435)             (4,609)
    Other                                                                    (80)                 -                   -
                                                                  -----------------   -----------------   ------------------

  Net cash provided by (used in) investing activities                    (18,113)             2,477             (28,304)
                                                                  -----------------   -----------------   ------------------

  CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of shares and exercise of share
      options and warrants, net                                           14,991              1,860               2,119
    Short-term bank credit, net                                               (3)                 -                  24
                                                                  -----------------   -----------------   ------------------

  Net cash provided by financing activities                               14,988              1,860               2,143
                                                                  -----------------   -----------------   ------------------

  Effect of exchange rate changes on cash                                      -                  -                  73
                                                                  -----------------   -----------------   ------------------

  Increase (decrease) in cash and cash equivalents                        (5,193)             6,616              (5,975)
  Cash and cash equivalents at the beginning of the year                  23,833             18,640              25,256
                                                                  -----------------   -----------------   ------------------

  Cash and cash equivalents at the end of the year                 $      18,640       $     25,256        $     19,281
                                                                  =================   =================   ==================

  SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:
    Cash paid during the year for:
      Income taxes                                                 $         105       $        257        $        445
                                                                  =================   =================   ==================



The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-8 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


                                                                                 YEAR ENDED DECEMBER 31,
                                                               -----------------------------------------------------------
                                                                      2000                2001                 2002
                                                               ------------------   -----------------    -----------------
<S>                                                            <C>                  <C>                  <C>
 (a) PAYMENT FOR THE ACQUISITION OF CPS:


            Net fair value of assets acquired and liabilities
              assumed at the acquisition date:

            Working capital (excluding cash and cash
              equivalents)                                      $          158
            Property and equipment                                         185
            Long-term investments                                           93
            Long-term liabilities                                          (42)
            In-process research and development                          6,786
            Core technology                                              2,189
            Assembled work-force                                           409
            Goodwill                                                     2,797
                                                               ------------------

                                                                        12,575
          Less - amount acquired by issuance of shares                  (9,386)
                                                               ------------------

                                                                $        3,189
                                                               ==================

 (b)        PAYMENT FOR THE ACQUISITION OF CERTAIN ASSETS AND
              LIABILITIES OF SCI:

            Estimated fair value of assets acquired and
              liabilities assumed at the acquisition date:

            Working capital deficiency                          $       (5,231)
            Assembled work-force                                           523
            Goodwill                                                    23,639
                                                               ------------------

                                                                        18,931
          Less - amount acquired by issuance of shares                 (10,321)
          Less - accrued acquisition costs                              (1,650)
                                                               ------------------

                                                                $       6,960
                                                               ==================

          ISSUANCE OF ADDITIONAL SHARES IN RESPECT OF SCI
            ACQUISITION:

            Adjustment to working capital                                            $       (282)        $          -
            Goodwill                                                                        3,197                   29
                                                                                    ------------------   -----------------

                                                                                     $      2,915         $         29
                                                                                    ==================   =================


The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-9 -
<PAGE>
<TABLE>
<CAPTION>

                                                                                                  NICE SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


                                                                                    YEAR ENDED DECEMBER 31,
                                                                    -------------------------------------------------------
                                                                         2000                2001               2002
                                                                    ----------------   -----------------  -----------------
<S>                                                                 <C>                <C>                <C>
  (c) PROCEEDS FROM SALE OF ASSETS OF DEES:

           Working capital                                                              $        536
           Loss on sale                                                                         (281)
                                                                                       -----------------

                                                                                        $        255
                                                                                       =================

  (d)        PAYMENT FOR THE ACQUISITION OF CERTAIN ASSETS AND LIABILITIES OF
             TCS

           Estimated fair value of assets acquired and liabilities assumed at
            the acquisition date:

           Working capital (excluding cash and cash equivalents)                                           $      8,347
           Related party receivables                                                                             12,804
           Property and equipment                                                                                 7,616
           Intangible assets                                                                                      9,320
           In-process research and development                                                                    1,270
           Other long-term liability                                                                            (13,500)
           Goodwill                                                                                              26,682
                                                                                                          -----------------

                                                                                                                 52,539
          Less - amount acquired by issuance of shares                                                          (18,051)
          Less - accrued acquisition costs                                                                       (3,008)
                                                                                                          -----------------

                                                                                                           $     31,480
                                                                                                          =================




The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                              - F-10 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 1:-      GENERAL

              a.     NICE Systems Ltd. ("NICE") and subsidiaries (collectively -
                     "the Company") develop, market and support integrated,
                     scalable multimedia digital recording platforms, enhanced
                     software applications and related professional services.
                     These solutions capture and analyze unstructured
                     (non-transaction) data and convert it into actionable
                     knowledge for business and security performance management
                     applications. The Company's solutions capture multiple
                     forms of interaction, including voice, fax, email, web
                     chat, radio, and video transmissions over wire line,
                     wireless, packet telephony, terrestrial trunk radio and
                     data networks.

                     The Company's products are based on two types of recording
                     platforms - audio and video - and are used primarily in
                     contact centers, trading floors, public safety
                     organizations, transportation, corporate security, gaming
                     and correctional facilities, as well as various government
                     and intelligence agencies.

                     The Company's products are sold primarily through a global
                     network of distributors, system integrators and strategic
                     partners; a portion of product sales and most services are
                     sold directly to end-users.

                     The Company's markets are located primarily in North
                     America, Europe and the Far East.

                     The Company depends on limited number of contract
                     manufacturers for producing its products. If any of these
                     manufacturers become unable or unwilling to continue to
                     manufacture or fail to meet the quality or delivery
                     requirements needed to satisfy its customers, it could
                     result in the loss of sales, which could adversely affect
                     the Company's results of operations and financial position.

                     The Company relies upon a number of independent
                     distributors to market, sell and service its products in
                     certain markets. If the Company is unable to effectively
                     manage and maintain relationships with its distributors, or
                     to enter into similar relationships with others, its
                     ability to market and sell its products in certain markets
                     will be affected. In addition, a loss of a major
                     distributor, or any event negatively affecting such
                     distributors' financial condition, could cause a material
                     adverse effect on the Company's results of operations and
                     financial position.

                     As for major customer data, see Note 16c.

              b.     Acquisition of Thales Contact Solutions:

                     In November 2002, the Company acquired certain assets and
                     assumed certain liabilities of Thales Contacts Solutions
                     ("TCS") for an aggregate consideration of $ 52,539
                     including the issuance of 2,187,500 American Depositary
                     Shares ("ADSs") of NICE valued at $ 18,051. TCS is a
                     developer of customer-facing technology for Public Safety,
                     Wholesale Trading and Call Centers, based in the United
                     Kingdom. The acquisition was accounted for by the purchase
                     method and accordingly, the purchase price has been
                     allocated according to the estimated fair value of the
                     assets acquired and liabilities assumed of TCS. The value
                     of the shares issued was determined based on the market
                     price of NICE's shares on the acquisition date. The results
                     of TCS's operations have been included in the consolidated
                     financial statements since November 2, 2002 ("the closing
                     date").

                                    - F-11 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 1:-      GENERAL (CONT.)

                     With the acquisition of TCS, the Company significantly
                     expanded its customer base, presence in Europe, and its
                     network of distributors and partners. Additionally, the
                     Company broadened its product offerings and global
                     professional services team.

                     Under the terms of the acquisition agreement ("the
                     agreement"), contingent cash payments of up to $ 10,000 in
                     2003, $ 7,500 in 2004 and $ 7,500 in 2005 would be due if
                     certain financial performance criteria are met as part of a
                     three-year earn-out provision covering 2002 through 2004.
                     The relevant criteria for 2002 were not met and therefore
                     no contingent payment in respect of 2002 was recorded.
                     Should any contingent payment be made under the agreement
                     in the future, the additional consideration, when
                     determinable, will increase the purchase price and
                     accordingly additional goodwill will be recorded.

                     In the fourth quarter of 2002, the Company recorded a
                     current liability of $ 2,800 and a long-term liability of $
                     13,500 reflecting obligations under a long-term contract
                     assumed by the Company in the TCS acquisition for which no
                     future benefit exists. See also Note 12b(1).

                     Under the terms of the agreement, the initial cash portion
                     of the purchase price was adjusted downward by $ 12,804 in
                     respect of the actual net value of assets acquired and 2002
                     sales of TCS. This amount is presented on the balance sheet
                     as related party receivables. As a result of the purchase
                     price adjustment, the acquisition cost was reduced to $
                     39,735.


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

                     Trade receivables                           $     15,808
                     Other receivables and prepaid expenses             1,448
                     Inventories                                        6,776
                     Property and equipment                             7,616
                     In-process research and development                1,270
                     Trademarks                                         1,040
                     Core technology                                    1,620
                     Distribution network                               6,160
                     Maintenance contracts                                500
                     Goodwill                                          26,682
                                                               ----------------

                     Total assets acquired                             68,920

                     Trade payables                                    (1,747)
                     Accrued expenses and other liabilities           (13,938)
                     Long-term liability                              (13,500)
                                                               ----------------

                     Total liabilities assumed                        (29,185)
                                                               ----------------

                     Net assets acquired                         $     39,735
                                                               ================

                                    - F-12 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 1:-      GENERAL (CONT.)

                     The $ 1,270 assigned to in-process research and development
                     was written off at the date of acquisition in accordance
                     with FASB Interpretation ("FIN") No. 4, "Applicability of
                     FASB Statement No. 2 to Business Combinations Accounted for
                     by the Purchase Method".

                     The following represents the unaudited pro-forma condensed
                     results of operations for the years ended December 31, 2001
                     and 2002, assuming that the acquisition occurred on January
                     1, 2001 and January 1, 2002, respectively. The pro-forma
                     information is not necessarily indicative of the results of
                     operations, which actually would have occurred if the
                     acquisition had been consummated at the beginning of each
                     year presented, nor does it purport to represent the
                     results of operations for future periods.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                            -----------------------------------
                                                                  2001              2002
                                                            ----------------  -----------------
<S>                                                           <C>               <C>
                     Revenues                                 $    202,439      $    214,002
                                                            ================  =================

                     Net loss                                 $    (61,846)     $    (53,821)
                                                            ================  =================

                     Basic and diluted net loss per share     $      (4.06)     $      (3.45)
                                                            ================  =================
</TABLE>

                     The condensed results of operations of TCS are based on the
                     financial statements of TCS for the year ended December 31,
                     2001 and on the results of operations of TCS for the period
                     from January 1, 2002 to November 2, 2002 (the closing
                     date), which were prepared by TCS's management and were
                     submitted to the Company as part of the acquisition. The
                     2001 financial statements of TCS were prepared in
                     conformity with U.S GAAP and were audited by TCS's
                     independent auditors, who provided an unqualified opinion.

              c.     Acquisition of Stevens Communications Inc.

                     In December 2000, the Company acquired certain assets and
                     assumed certain liabilities of Stevens Communications Inc.
                     ("SCI") for an aggregate consideration of $ 18,931
                     including the issuance of up to 426,745 ADSs of NICE of
                     which 186,818 ADSs were target shares contingent upon the
                     achievement of certain objectives and events through 2002
                     and 38,914 ADSs are for the benefit of certain SCI's
                     employees. The acquisition was accounted for by the
                     purchase method and accordingly, the purchase price has
                     been allocated according to the estimated fair value of the
                     assets acquired and liabilities assumed of SCI.

                     SCI is a systems distributor, whose activities included the
                     promotion, distribution, installation and maintenance of
                     the Company's products in North America.

                     An amount of $ 24,162, out of the total acquisition cost,
                     was attributed to goodwill and assembled work force.

                     In 2001, the Company entered into a final settlement
                     agreement with SCI addressing a dispute with SCI regarding
                     the fair value of SCI's working capital. The adjustments
                     from the terms of the final settlement resulted in a
                     one-time charge to other expense of $ 4,448 representing a
                     lump-sum settlement of disputed items of $ 3,600 and
                     obligations for future consulting services, which are no
                     longer of value to the Company. In addition, the Company
                     released from escrow the 186,818 ADS contingent target
                     shares upon the achievement of the determined objectives
                     and events and accordingly, recorded approximately $ 3
                     million to goodwill.

                                    - F-13 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 1:-      GENERAL (CONT.)

              d.     Acquisition of Centerpoint Solutions Inc.:

                     In April 2000, the Company acquired all of the outstanding
                     capital stock of Centerpoint Solutions Inc. ("CPS") for a
                     total consideration of $ 12,886 including the issuance of
                     200,000 ADSs of NICE of which 50,000 were deemed target
                     shares ("the target shares") contingent upon the
                     achievement of certain objectives. The acquisition was
                     accounted for by the purchase method and accordingly, the
                     purchase price has been allocated according to the
                     estimated fair value of the assets acquired and liabilities
                     assumed of CPS.

                     CPS is a developer of Internet-based applications for
                     statistical monitoring, digital recording and automatic
                     customer surveys for customer contact centers.

                     In connection with the CPS acquisition, the Company
                     recorded in the second quarter of 2000, a one-time expense
                     of $ 6,786 to write-off software acquired from CPS for
                     which technological feasibility has not yet been
                     established and for which no alternative future use exists.
                     An amount of $ 5,395 out of the total acquisition cost was
                     attributed to goodwill and other intangible assets.

                     On March 19, 2002, Mr. Chapiewski, a former shareholder of
                     CPS, filed an action against the Company by complaint. In
                     this complaint, Mr. Chapiewski alleged that the Company
                     violated Sections 604(3) and 604(4) of the Colorado
                     Securities Act, committed common law fraud and negligent
                     misrepresentation, and breached representations and
                     warranties in the agreement relating to the CPS
                     acquisition, by misrepresenting to Mr. Chapiewski, either
                     affirmatively or through omissions, the Company's financial
                     results and value of securities. Mr. Chapiewski also
                     claimed that NICE Centerpoint breached severance provisions
                     of an employment agreement with him in the amount of $ 80.
                     Mr. Chapiewski sought damages in an unspecified amount. On
                     November 25, 2002 the Company settled the claim with
                     Chapiewsky, without any admission of liability or
                     wrongdoing on its part, for an amount of $ 3,000 and the
                     release from escrow of the target shares valued at $ 469.
                     The settlement agreement resulted in a one-time charge to
                     other expenses of $ 3,469.


                                    - F-14 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES

              The consolidated financial statements were prepared in accordance
              with United States Generally Accepted Accounting Principles ("U.S.
              GAAP").

              a.     Use of estimates:

                     The preparation of financial statements in conformity with
                     generally accepted accounting principles requires
                     management to make estimates and assumptions that effect
                     the amounts reported in the financial statements and
                     accompanying notes. Actual results could differ from those
                     estimates.

              b.     Financial statements in United States dollars:

                     The currency of the primary economic environment in which
                     the operations of NICE and its U.S subsidiary are conducted
                     is the U.S. dollar ("dollar"); thus, the dollar is the
                     reporting and functional currency of the Company.

                     The Company's transactions and balances denominated in
                     dollars are represented at their original amounts.
                     Non-dollar transactions and balances have been remeasured
                     to dollars in accordance with Statement of Financial
                     Accounting Standards ("SFAS") No. 52 "Foreign Currency
                     Translation". All transaction gains and losses from
                     remeasurement of monetary balance sheet items denominated
                     in non-dollar currencies are reflected in the statements of
                     operations as financial income or expenses, as appropriate.

                     For those subsidiaries whose functional currency has been
                     determined to be their local currency, assets and
                     liabilities are translated at year-end exchange rates and
                     statement of operations items are translated at average
                     exchange rates prevailing during the year. Such translation
                     adjustments are recorded as a separate component of
                     accumulated other comprehensive income (loss) in
                     shareholders' equity.

              c.     Principles of consolidation:

                     Intercompany transactions and balances have been eliminated
                     upon consolidation.

              d.     Cash equivalents:

                     The Company considers short-term unrestricted highly liquid
                     investments that are readily converted into cash,
                     originally purchased with maturities of three months or
                     less to be cash equivalents.

              e.     Short-term bank deposits:

                     Bank deposits with maturities of more than three months but
                     less than one year are included in short-term bank
                     deposits. Such short-term bank deposits are stated at cost.

              f.     Marketable securities:

                     The Company accounts for investments in debt securities in
                     accordance with SFAS No. 115, "Accounting for Certain
                     Investments in Debt and Equity Securities".

                                    - F-15 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     Management determines the appropriate classification of its
                     investments in debt securities at the time of purchase and
                     reevaluates such determinations at each balance sheet date.
                     Debt securities are classified as held-to-maturity when the
                     Company has the positive intent and ability to hold the
                     securities to maturity and are stated at amortized cost.
                     The amortized cost of held-to-maturity securities is
                     adjusted for amortization of premiums and accretion of
                     discounts to maturity. Such amortization, decline in value
                     judged to be other than temporary, and interest are
                     included in financial income or expenses, as appropriate.

              g.     Inventories:

                     Inventories are stated at the lower of cost or market
                     value. The cost of raw materials and work-in-progress is
                     determined by the "average cost" method, and the cost of
                     finished goods - on the basis of computed manufacturing
                     costs.

                     Inventory provisions are provided to cover risks arising
                     from slow-moving items, technological obsolescence, excess
                     inventories, discontinued products and for market prices
                     lower than cost. Inventory provisions for 2000, 2001 and
                     2002 were $ 2,675, $ 3,400 and $ 1,650, respectively, and
                     have been included in cost of revenues.

              h.     Investment in affiliates:

                     The investment in affiliated companies is stated at cost,
                     since the Company does not have the ability to exercise
                     significant influence over operating and financial policies
                     of these investees.

                     The Company's investments in other companies are reviewed
                     for impairment whenever events or changes in circumstances
                     indicate that the carrying amount of an investment may not
                     be recoverable, in accordance with Accounting Principle
                     Board Opinion ("APB") No. 18 "The Equity Method of
                     Accounting for Investments in Common Stock".

                     As of December 31, 2002 an impairment loss had been
                     identified in the amount of $ 229.

              i.     Property and equipment, net:

                     Property and equipment are stated at cost, net of
                     accumulated depreciation.

                     Depreciation is calculated using the straight-line method
                     over the estimated useful lives of the assets, at the
                     following annual rates:
                                                                    %
                                                             ----------------

                     Computers and peripheral equipment            33
                     Office furniture and equipment              6 - 15
                     Motor vehicles                                15

                     Leasehold improvements are amortized by the straight-line
                     method over the term of the lease or the estimated useful
                     life of the improvements, whichever is shorter.


                                    - F-16 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              j.     Impairment of long-lived assets:

                     The Company's long-lived assets and certain identifiable
                     intangibles are reviewed for impairment in accordance with
                     SFAS No. 144 "Accounting for the Impairment or Disposal of
                     Long-Lived Assets" whenever events or changes in
                     circumstances indicate that the carrying amount of an asset
                     may not be recoverable. Recoverability of assets to be held
                     and used is measured by a comparison of the carrying amount
                     of an asset to the future undiscounted cash flows expected
                     to be generated by the assets. If such assets are
                     considered to be impaired, the impairment to be recognized
                     is measured by the amount by which the carrying amount of
                     the assets exceeds the fair value of the assets. Assets to
                     be disposed of are reported at the lower of the carrying
                     amount or fair value less costs to sell. In 2002, no
                     impairment losses have been identified.

              k.     Intangible assets:

                     Intangible assets subject to amortizations, which arose
                     from acquisitions prior to July 1, 2001 are being amortized
                     on a straight-line basis over their useful lives in
                     accordance with APB No. 17 "Intangible Assets". Intangible
                     assets acquired in a business combination on or after July
                     1, 2001, are amortized over their useful lives using a
                     method of amortization that reflects the pattern in which
                     the economic benefits of the intangible assets are consumed
                     or otherwise used, in accordance with SFAS No. 142
                     "Goodwill and Other Intangible Assets".

                     In accordance with the requirement of SFAS No. 142,
                     intangible assets deemed to have indefinite lives are no
                     longer amortized after January 1, 2002. Under SFAS No. 142
                     the Company will perform an annual test for impairment of
                     intangible assets with indefinite lives.

                     Amortization is calculated using the straight-line method
                     over the estimated useful lives at the following annual
                     rates:

<TABLE>
<CAPTION>
                                                                                  %
                                                                          --------------------
<S>                                                                               <C>
                     Capitalized software development costs (see o)               33
                     Distribution network                                     Indefinite
                     Core technology                                            17 - 33
                     Trademarks                                                 17 - 50
                     Maintenance contracts                                        33
                     Other intangible assets                                      33
</TABLE>

              l.     Goodwill

                     Goodwill represents the excess of the cost over the net
                     assets of businesses acquired. Goodwill arising from
                     acquisitions prior to July 1, 2001 was amortized until
                     December 31, 2001 on a straight-line basis over 10 years.
                     Under SFAS No. 142 goodwill acquired in a business
                     combination consummated on or after July 1, 2001, is not
                     amortized.

                                    - F-17 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     SFAS No.142 requires goodwill be tested for impairment on
                     adoption and at least annually thereafter or between annual
                     tests in certain circumstances, and written down when
                     impaired, rather than amortized as previous accounting
                     standards required. Goodwill is tested for impairment by
                     comparing the fair value of the reporting unit with its
                     carrying value. Fair value is determined using discounted
                     cash flows, market multiples and market capitalization.
                     Significant estimates used in the fair value methodologies
                     include estimates of future cash flows, future short-term
                     and long-term growth rates, weighted average cost of
                     capital and estimates of market multiples of the reportable
                     unit. The Company performed the transitional impairment
                     test during the first quarter of 2002, and did not
                     recognize any impairment loss. The Company performed the
                     annual impairment test during the fourth quarter of 2002,
                     and recognized an impairment loss of $ 28,260.

              m.     Revenue recognition:

                     The Company generates revenues from sales of products,
                     which include hardware and software, software licensing,
                     fixed price contracts, professional services and
                     maintenance.

                     The Company sells its products indirectly through
                     resellers, integrators and distributors, all of whom are
                     considered end-users, and through its direct sales force.

                     Revenues from product sales and software license agreements
                     are recognized when all criteria outlined in Statement Of
                     Position ("SOP") 97-2 "Software Revenue Recognition" (as
                     amended) and Staff Accounting Bulletin ("SAB") No. 101
                     "Revenue Recognition in the Financial Statements" are met.
                     Revenue from products and license fees is recognized when
                     persuasive evidence of an agreement exists, delivery of the
                     product has occurred, the fee is fixed or determinable, no
                     further obligations exist and collectibility is probable.
                     Sales agreements with specific acceptance terms are not
                     recognized until the customer has confirmed that the
                     product or service has been accepted.

                     Where software arrangements involve multiple elements,
                     revenue is allocated to each element based on Vendor
                     Specific Objective Evidence ("VSOE") of the relative fair
                     values of each element in the arrangement, in accordance
                     with the residual method. The Company's VSOE used to
                     allocate the sales price to professional services and
                     maintenance is based on the renewal price. Under the
                     residual method, revenue is recognized for the delivered
                     elements when (1) there is VSOE of the fair values of all
                     the undelivered elements, and (2) all revenue recognition
                     criteria of SOP 97-2, as amended, are satisfied. Under the
                     residual method any discount in the arrangement is
                     allocated to the delivered element.

                     The Company maintains a provision for product returns in
                     accordance with SFAS No. 48 "Revenue Recognition When Right
                     of Return Exists". The provision was estimated based on the
                     Company's past experience and was deducted from revenues.

                     Trade receivables as of December 31, 2001 and 2002 are
                     presented net of provision for product returns in the
                     amounts of $ 2,455 and $ 2,311, respectively.

                                    - F-18 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     The Company recognizes revenues from fixed price contracts
                     that require significant customization, integration and
                     installation based on SOP No. 81-1 "Accounting for
                     Performance of Construction - Type and Certain Production -
                     Type Contracts" using the percentage-of-completion method
                     of accounting based on the value added and results achieved
                     out of the completeness of the product as a whole. In order
                     to verify the measure of the added value, the Company
                     identifies elements or sub-components of those elements.
                     Provisions for estimated losses on uncompleted contacts are
                     made in the period in which such losses are determined. As
                     of December 31, 2002, no such estimated losses were
                     identified.

                     Revenues from maintenance and professional services are
                     recognized ratably over the contractual period or as
                     services are performed.

                     Deferred revenue includes advances and payments received
                     from customers, for which revenue has not yet been
                     recognized.

              n.     Warranty costs:

                     Provisions for warranty are made at the time revenues are
                     recognized for estimated material costs during the warranty
                     period based on the Company's experience.

              o.     Research and development costs:

                     Research and development costs (net of grants and
                     participations) incurred in the process of software
                     production before establishment of technological
                     feasibility, are charged to expenses as incurred. Costs of
                     the production of a product master incurred subsequent to
                     the establishment of technological feasibility are
                     capitalized according to the principles set forth in SFAS
                     No. 86 "Accounting for the Costs of Computer Software to be
                     Sold, Leased or Otherwise Marketed". Based on the Company's
                     product development process, technological feasibility is
                     established upon completion of a detailed program design or
                     a working model.

                     Costs incurred by the Company between completion of the
                     detailed program design or working model and the point at
                     which the product is ready for general release have been
                     capitalized.

                     Capitalized software development costs are amortized on a
                     product-by-product basis commencing with general product
                     release by the greater of the amount computed using the:
                     (i) ratio that current gross revenues from sales of the
                     software bear to the total of current and anticipated
                     future gross revenues from sales of that software, or (ii)
                     the straight-line method over the estimated useful life of
                     the software product.

                     The Company assesses the recoverability of the unamortized
                     capitalized cost on a regular basis by determining whether
                     the amortization of the asset over its remaining life can
                     be recovered through undiscounted future operating cash
                     flows from the specific software product sold. Based on its
                     most recent analyses, management believes that no
                     impairment of capitalized software development costs exists
                     as of December 31, 2002.

                                    - F-19 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              p.     Income taxes:

                     The Company accounts for income taxes in accordance with
                     SFAS No. 109, "Accounting for Income Taxes". This statement
                     prescribes the use of the liability method whereby deferred
                     tax asset and liability account balances are determined
                     based on differences between financial reporting and tax
                     bases of assets and liabilities and are measured using the
                     enacted tax rates and laws that will be in effect when the
                     differences are expected to reverse. The Company provides a
                     valuation allowance, if necessary, to reduce deferred tax
                     assets to their estimated realizable value.

              q.     Government grants:

                     Non-royalty bearing grants from the Government of Israel
                     for funding research and development projects are
                     recognized at the time the Company is entitled to such
                     grants on the basis of the related costs incurred and
                     recorded as a reduction to research and development costs.

              r.     Concentrations of credit risk:

                     Financial instruments that potentially subject the Company
                     to concentrations of credit risk consist principally of
                     cash and cash equivalents, short-term bank deposits, trade
                     and unbilled receivables, marketable securities and related
                     party receivables.

                     The Company's cash and cash equivalents and short-term bank
                     deposits are invested in deposits mainly in dollars with
                     major international banks. Such deposits in the United
                     States may be in excess of insured limits and are not
                     insured in other jurisdictions. Management believes that
                     the financial institutions that hold the Company's
                     investments are financially sound and, accordingly, minimal
                     credit risk exists with respect to these investments.

                     The Company's trade and unbilled receivables are derived
                     from sales to customers located primarily in North America,
                     Europe and the Far East. The Company performs ongoing
                     credit evaluations of its customers and obtains letter of
                     credit and bank guarantees for certain receivables.
                     Additionally, the Company insures certain of its
                     receivables with a credit insurance company. An allowance
                     for doubtful accounts is provided with respect to specific
                     debts that the Company has determined to be doubtful of
                     collection and a general provision on the remaining
                     balance.

                     The Company's marketable securities include investment in
                     debentures of U.S. corporations. Management believes that
                     those corporations are financially sound, the portfolio is
                     well diversified, and accordingly, minimal credit risk
                     exists with respect to those marketable securities.

                     Related party receivables are balances due from Thales SA.
                     Management believes that minimal credit risk exists with
                     respect to this balance.

                     The Company entered into forward contracts and option
                     strategies (together: "derivative instruments") intended to
                     protect against the increase in value of forecasted
                     non-dollar currency cash flows. The derivative instruments
                     effectively hedge the Company's non-dollar currency
                     exposure (see Note 10).


                                    - F-20 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              s.     Severance pay:

                     The Company's liability for severance pay for its Israeli
                     employees is calculated pursuant to Israeli severance pay
                     law based on the most recent salary of the employees
                     multiplied by the number of years of employment as of the
                     balance sheet date. Employees are entitled to one month's
                     salary for each year of employment, or a portion thereof.
                     The Company's liability is fully provided by monthly
                     deposits with insurance policies, deposits with severance
                     pay funds and by an accrual.

                     The deposited funds include profits accumulated up to the
                     balance sheet date. The deposited funds may be withdrawn
                     only upon the fulfillment of the obligation pursuant to
                     Israeli severance pay law or labor agreements. The value of
                     the deposited funds is based on the cash surrendered value
                     of these policies and includes immaterial profits.

                     Severance pay expense for 2000, 2001 and 2002, was $ 1,255,
                     $ 2,428 and $ 2,003, respectively.

              t.     Basic and diluted net loss per share:

                     Basic net loss per share is computed based on the weighted
                     average number of Ordinary shares outstanding during each
                     year. Diluted net loss per share is computed based on the
                     weighted average number of Ordinary shares outstanding
                     during each year plus dilutive potential equivalent
                     Ordinary shares considered outstanding during the year, in
                     accordance with SFAS No. 128, "Earnings Per Share".

                     All outstanding stock options and warrants have been
                     excluded from the calculation of the diluted net loss per
                     share because all such securities are anti-dilutive for all
                     periods presented. The total weighted average number of
                     shares related to the outstanding options and warrants
                     excluded from the calculations of diluted net loss per
                     share was 3,583,149, 4,929,910 and 5,315,170 for the years
                     ended December 31, 2000, 2001 and 2002, respectively.

              u.     Stock-based compensation:

                     The Company has elected to follow APB No. 25, "Accounting
                     for Stock Issued to Employees" and FIN No. 44 "Accounting
                     for Certain Transactions Involving Stock Compensation" in
                     accounting for its employee stock option plan. Under APB
                     No. 25, when the exercise price of the Company's options is
                     less than the market value of the underlying shares on the
                     date of grant, compensation expense is recognized and
                     amortized over the vesting period. The pro forma
                     information with respect to the fair value of the options
                     is provided in accordance with the provisions of SFAS No.
                     123 "Accounting for Stock-based Compensation".

                     In December 2002, the FASB issued SFAS No. 148, "Accounting
                     for Stock Based Compensation - Transition and Disclosure -
                     an amendment of SFAS No. 123". SFAS No. 148 permits two
                     additional transition methods for entities that adopt the
                     fair value based method of accounting for stock-based
                     employee compensation. The transition guidance and annual
                     disclosure provisions of SFAS No. 148 are effective for
                     fiscal years ending after December 15, 2002, with earlier
                     application permitted in certain circumstances. The interim
                     disclosure provisions are effective for financial reports
                     containing financial statements for interim periods
                     beginning after December 15, 2002. As at the balance sheet
                     date, the Company continues to apply APB No. 25.


                                    - F-21 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                     Pro forma information regarding net income (loss) and net
                     earnings (loss) per share is required by SFAS No. 123, and
                     has been determined as if the Company had accounted for its
                     employee options under the fair value method prescribed by
                     that statement. The fair value for these options was
                     estimated at the date of grant using a Black-Scholes option
                     pricing model with the following weighted-average
                     assumptions for 2000, 2001 and 2002: risk-free interest
                     rates of 6%, 4.3% and 1.7%, respectively dividend yields of
                     0%, 0% and 0%, respectively volatility factors of the
                     expected market price of the Company's Ordinary shares of
                     0.821, 0.506 and 0.827, respectively, and a weighted
                     average expected life of the option of 3.5, 4.3 and 4.3
                     years, respectively.

                     Pro forma information under SFAS No. 123:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                     ----------------------------------------------------
                                                                          2000               2001              2002
                                                                     ---------------    ---------------   ---------------
<S>                                                                   <C>                <C>               <C>
                       Net loss as reported                           $    (5,319)       $   (46,795)      $   (33,982)
                       Add: Stock based compensation expense
                         included in the determination of net loss
                         as reported                                          128                 23                12
                       Deduct: Stock based compensation expense
                         determined under fair value method for
                         all awards                                       (43,972)           (31,636)          (18,467)
                                                                     ---------------    ---------------   ---------------

                       Pro forma net loss                             $   (49,163)       $   (78,408)      $   (52,437)
                                                                     ===============    ===============   ===============

                       Basic and diluted net loss per share as
                         reported                                     $     (0.43)       $     (3.59)      $     (2.46)
                                                                     ===============    ===============   ===============

                       Pro forma basic and diluted net loss per
                       share                                          $     (3.97)       $     (6.01)      $     (3.80)
                                                                     ===============    ===============   ===============
</TABLE>

              v.     Fair value of financial instruments:

                     The following methods and assumptions were used by the
                     Company in estimating its fair value disclosures for
                     financial instruments:

                     The carrying amount reported in the balance sheet for cash
                     and cash equivalents, short-term bank deposits, trade and
                     unbilled receivables, related party receivables, short-term
                     bank credit and trade payables approximates their fair
                     value due to the short-term maturities of such instruments.

                     The fair value for marketable U.S. corporate securities is
                     based on quoted market prices and does not differ
                     significantly from the carrying amount (see Note 3).

                     The fair value of other long-term liabilities is estimated
                     by discounting the future cash flows using the current
                     interest rate for liabilities of similar terms and
                     maturities. The fair value of other long-term liabilities,
                     which carrying amount as of December 31, 2002 was $ 13,500,
                     is approximated to $ 12,400.


                                    - F-22 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              w.     Advertising expenses:

                     Advertising expenses are charged to expense as incurred
                     (see Note 17d).

              x.     Derivatives and hedging activities:

                     SFAS No. 133, "Accounting for Derivative Instruments and
                     Hedging Activities" requires the Company to recognize all
                     of its derivative instruments as either assets or
                     liabilities on the balance sheet at fair value. The
                     accounting for changes in the fair value (i.e., gains or
                     losses) of a derivative instrument depends on whether it
                     has been designated and qualifies as part of a hedging
                     relationship and further, on the type of hedging
                     relationship. For those derivative instruments that are
                     designated and qualify as hedging instruments, a company
                     must designate the hedging instrument, based upon the
                     exposure being hedged, as a fair value hedge, cash flow
                     hedge or a hedge of a net investment in a foreign
                     operation.

                     For derivative instruments that are designated and qualify
                     as a fair value hedge (i.e., hedging the exposure to
                     changes in the fair value of an asset or a liability or an
                     identified portion thereof that is attributable to a
                     particular risk), the gain or loss on the derivative
                     instrument as well as the offsetting loss or gain on the
                     hedged item attributable to the hedged risk are recognized
                     in the same line item associated with the hedged item in
                     current earnings during the period of the change in fair
                     values. For derivative instruments that are designated and
                     qualify as a cash flow hedge (i.e., hedging the exposure to
                     variability in expected future cash flows that is
                     attributable to a particular risk), the effective portion
                     of the gain or loss on the derivative instrument is
                     reported as a component of other comprehensive income and
                     reclassified into earnings in the same line item associated
                     with the hedged transaction in the same period or periods
                     during which the hedged transaction affects earnings. The
                     remaining gain or loss on the derivative instrument in
                     excess of the cumulative change in the present value of
                     future cash flows of the hedged item, if any, is recognized
                     in financial income/expense in current earnings during the
                     period of change.

                     For derivative instruments not designated as hedging
                     instruments, the gain or loss is recognized in financial
                     income/expense in current earnings during the period of
                     change.

              y.     Impact of recently issued accounting standards:

                     In June 2002, the FASB issued SFAS No. 146, "Accounting for
                     Costs Associated with Exit or Disposal Activities", which
                     addresses significant issue regarding the recognition,
                     measurement, and reporting of costs associated with exit
                     and disposal activities, including restructuring
                     activities. SFAS No. 146 requires that costs associated
                     with exit or disposal activities be recognized when they
                     are incurred rather than at the date of a commitment to an
                     exit or disposal plan. SFAS No. 146 is effective for all
                     exit or disposal activities initiated after December 31,
                     2002. The Company elected early adoption of SFAS No. 146.


                                    - F-23 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              z. Reclassification:

                     Certain amounts from prior years have been reclassified to
                     conform to the current year's presentation. The
                     reclassification had no effect on previously reported net
                     loss, shareholder's equity or cash flows.


NOTE 3:-      MARKETABLE SECURITIES

<TABLE>
<CAPTION>
                                     AMORTIZED           GROSS UNREALIZED        GROSS UNREALIZED           ESTIMATED
                                        COST                   GAINS                  LOSSES                FAIR VALUE
                               ---------------------- ----------------------  ---------------------- ------------------------
                                    DECEMBER 31,           DECEMBER 31,            DECEMBER 31,            DECEMBER 31,
                               ---------------------- ----------------------  ---------------------- ------------------------
                                  2001       2002        2001        2002        2001       2002        2001         2002
                               ---------- ----------- ----------  ----------  ---------- ----------- ----------   -----------
<S>                             <C>        <C>         <C>         <C>         <C>        <C>         <C>          <C>
               U.S. corporate
                 debentures     $ 63,446   $  49,100   $    988    $    330    $    314   $    309    $ 64,120     $  49,121
                               ========== =========== ==========  ==========  ========== =========== ==========   ===========

              As of December 31, 2001 and 2002, all the Company's securities
              were classified as held-to-maturity.

              In 2000 and 2001 the Company did not sell any securities prior to
              their maturity and accordingly did not realize any gains or losses
              on held-to-maturity securities in these years.

              In 2002, the Company sold one security, which was classified as
              held-to-maturity, due to a rating decrease, and accordingly
              recorded a loss of $ 55.

              The scheduled maturities of held-to-maturity securities at
              December 31, 2002, are as follows:

                                                                                        AMORTIZED            ESTIMATED
                                                                                           COST             FAIR VALUE
                                                                                     ----------------    -----------------
                 HELD-TO-MATURITY:

                   Due within one year                                                $     33,853        $     33,616
                   Due after one year through five years                                    15,247              15,505
                                                                                     ----------------    -----------------

                                                                                      $     49,100        $     49,121
                                                                                     ================    =================


NOTE 4:-      OTHER RECEIVABLES AND PREPAID EXPENSES

                                                                                                 DECEMBER 31,
                                                                                    --------------------------------------
                                                                                          2001                 2002
                                                                                    -----------------    -----------------

                Government authorities                                                $      2,475        $       4,010
                Interest receivable                                                            637                  301
                Prepaid expenses                                                             1,243                2,694
                Other                                                                        1,110                1,229
                                                                                    -----------------    -----------------

                                                                                      $      5,465        $       8,234
                                                                                    =================    =================
</TABLE>

                                    - F-24 -
<PAGE>
<TABLE>
<CAPTION>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 5:-      INVENTORIES
                                                                                                DECEMBER 31,
                                                                                   --------------------------------------
                                                                                         2001                 2002
                                                                                   -----------------   ------------------
<S>                                                                                  <C>                 <C>
                Raw materials                                                        $      6,995        $      4,880
                Work-in-progress                                                              843                 535
                Finished goods                                                              3,219               8,065
                                                                                   -----------------   ------------------

                                                                                     $     11,057        $     13,480
                                                                                   =================   ==================


NOTE 6:-      PROPERTY AND EQUIPMENT, NET

                Cost:
                  Computers and peripheral equipment                                 $     34,373        $     40,828
                  Office furniture and equipment                                            6,362              12,017
                  Motor vehicles                                                            2,853               1,570
                  Leasehold improvements                                                    3,335               3,567
                                                                                   -----------------   ------------------

                                                                                           46,923              57,982
                                                                                   -----------------   ------------------
                Accumulated depreciation:
                  Computers and peripheral equipment                                       20,711              28,830
                  Office furniture and equipment                                            1,975               2,941
                  Motor vehicles                                                            1,242                 792
                  Leasehold improvements                                                      884               1,074
                                                                                   -----------------   ------------------

                                                                                           24,812              33,637
                                                                                   -----------------   ------------------

                Depreciated cost                                                     $     22,111        $     24,345
                                                                                   =================   ==================



              Depreciation expense totaled $ 8,101, $ 8,044 and $ 10,192 for the
              years ended December 31, 2000, 2001 and 2002, respectively.

              As for pledges, see Note 12c.
</TABLE>

                                    - F-25 -
<PAGE>
<TABLE>
<CAPTION>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 7:-      INTANGIBLE ASSETS, NET

              a.     Intangible assets
                                                                                                  DECEMBER 31,
                                                                                      -------------------------------------
                                                                                            2001                2002
                                                                                      -----------------   -----------------
<S>                                                                                     <C>                 <C>
                      Original amounts:
                        Capitalized software development costs                          $     16,078        $     20,687
                        Core technology                                                        2,189               4,419
                        Trademarks                                                                 -               1,040
                        Maintenance contracts                                                      -                 510
                        Other intangible assets                                                1,498                 279
                                                                                      -----------------   -----------------

                                                                                              19,765              26,935
                                                                                      -----------------   -----------------
                      Accumulated amortization:
                        Capitalized software development costs                                 5,868              10,174
                        Core technology                                                        1,217               2,219
                        Trademarks                                                                 -                  58
                        Maintenance contracts                                                      -                  28
                        Other intangible assets                                                  780                 253
                                                                                      -----------------   -----------------

                                                                                               7,865              12,732
                                                                                      -----------------   -----------------

                      Amortized cost                                                          11,900              14,203
                      Distribution network                                                         -               6,280
                                                                                      -----------------   -----------------

                      Total intangible assets                                           $     11,900        $     20,483
                                                                                      =================   =================
</TABLE>


              b.     Amortization expense amounted to $ 2,954, $ 4,278 and $
                     5,473 for the years ended December 31, 2000, 2001 and 2002,
                     respectively.

              c.     Estimated amortization expense for the years ended:

                                                               DECEMBER 31,
                                                             ----------------

                      2003                                    $       6,344
                      2004                                            4,820
                      2005                                            2,258
                      2006                                              436
                      2007 and thereafter                               345
                                                             ----------------

                                                              $      14,203
                                                             ================


                                    - F-26 -
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>
                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 8:-      GOODWILL

              The changes in the carrying amount of goodwill for the year ended
              December 31, 2002 are as follows:

               Balance as of January 1, 2002                                                                 *) $   28,813
                 Goodwill acquired during the year                                                                  26,682
                 Impairment losses                                                                                 (28,260)
                 Foreign currency translation adjustments and other                                                    182
                                                                                                            ----------------

               Balance as of December 31, 2002                                                                  $   27,417
                                                                                                            ================

              *)     Includes an amount of $ 613 of assembled workforce that was
                     classified as goodwill effective January 1, 2002.

              The unaudited results of operations presented below for the three
              years ended December 31, 2000, 2001 and 2002, respectively,
              reflect the impact on results of operations had the Company
              adopted the non-amortization provisions of SFAS No. 142 effective
              January 1, 2000:

                                                                                      YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------------------
                                                                             2000               2001              2002
                                                                        --------------     --------------    ---------------

              Reported net loss                                          $     (5,319)      $    (46,795)     $     (33,982)
              Goodwill amortization                                               670              2,944                  -
                                                                        --------------     --------------    ---------------

              Adjusted net loss                                          $     (4,649)      $    (43,851)     $     (33,982)
                                                                        ==============     ==============    ===============

              Basic and diluted net loss per share:
                Reported net loss                                        $      (0.43)      $      (3.59)     $       (2.46)
                Goodwill amortization                                            0.05               0.23                  -
                                                                        --------------     --------------    ---------------

              Adjusted basic and diluted net loss per share              $      (0.38)      $      (3.36)     $       (2.46)
                                                                        ==============     ==============    ===============


NOTE 9:-      ACCRUED EXPENSES AND OTHER LIABILITIES
                                                                                                DECEMBER 31,
                                                                                   --------------------------------------
                                                                                         2001                 2002
                                                                                   -----------------   ------------------

                Employees and payroll accruals                                      $       8,445       $       9,249
                Accrued expenses                                                            9,001              23,694
                Restructuring accrual                                                       2,444                 406
                Deferred revenues                                                           5,013              10,728
                Other                                                                         411               1,782
                                                                                   -----------------   ------------------

                                                                                    $      25,314       $      45,859
                                                                                   =================   ==================
</TABLE>

                                    - F-27 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 10:-     DERIVATIVE INSTRUMENTS

              To protect against changes in the value of forecasted foreign
              currency cash flows, the Company has instituted a foreign currency
              cash flow hedging program. The Company hedges portions of its
              forecasted cash flows denominated in foreign currencies with
              forward contracts and option strategies (together: "derivative
              instruments").

              During 2001 and 2002, the Company entered into derivative
              instruments to hedge portions of the anticipated New Israeli
              Shekel ("NIS") payroll payments. These derivative instruments are
              designated as cash flows hedges, as defined by SFAS No. 133, as
              amended, and are all highly effective as hedges of these expenses
              when the salary is recorded. The effective portion of the hedged
              instruments is included in payroll expenses in the statements of
              operations.

              In addition, the Company entered into forward foreign exchange
              contracts to hedge certain trade and unbilled receivables, trade
              payable payments and expected payments under a fixed price
              contract denominated in foreign currency. The purpose of the
              Company's foreign currency hedging activities is to protect the
              Company from changes in the foreign currency exchange rate to the
              dollar.

              At December 31, 2002, the Company expects to reclassify $ 11 of
              net losses on derivative instruments from accumulated other
              comprehensive income to earnings during the next twelve months.


NOTE 11:-     RESTRUCTURING EXPENSES

              As part of the Company's strategic plan to address the changing
              business dynamics in the markets for its products and offerings,
              the Company recorded a restructuring charge in the amount of $
              14,554 in the first quarter of 2001, in accordance with EITF 94-3,
              "Liability Recognition for Certain Employee Termination Benefits
              and Other Costs to Exit an Activity (Including Certain Costs in a
              Restructuring)" and SAB No. 100 "Restructuring and Impairment
              Charges". The restructuring consisted of a series of actions to
              improve the Company's long-term strategic opportunity including a
              reduction of 30% of the workforce (approximately 340 employees),
              consolidation of functions, the closing of certain facilities
              (mainly in the U.S.), and the disposal of assets that were no
              longer required due to the change in strategic direction. In
              addition, goodwill impairment was recognized for the effect of
              discontinuing a certain product line, which was acquired in the
              1997 Dees transaction.


                                    - F-28 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 11:-     RESTRUCTURING EXPENSES (CONT.)

              Following the acquisition of TCS, the Company identified an
              opportunity to increase flexibility and focus, improve
              responsiveness and reduce unnecessary overhead. In December 2002,
              the Company adopted a plan to achieve these objectives, which
              involves the phased reduction of approximately 140 of the
              initially combined 1,077 staff and consolidation of certain field
              offices. The Company expects to incur a total cost of $ 3,000 in
              connection with this plan. The Company elected early adoption of
              SFAS No. 146 "Accounting for Costs Associated with Exit or
              Disposal Activities". SFAS No. 146 requires that a liability for a
              cost that is associated with an exit activity be recognized only
              when the liability is incurred. It supersedes the guidance in EITF
              94-3. In SFAS No. 146, an entity's commitment to a plan does not,
              by itself, create a present obligation to other parties that meets
              the definition of a liability. Additionally, SFAS No. 146
              establishes that fair value is the objective for the initial
              measurement of the liability. Accordingly, the liability related
              to the involuntary reductions that were effected in December 2002
              of $ 282 was included in the Company's balance sheet. The
              remaining reductions in force are planned to be implemented over
              the first three quarters of 2003 and will be recognized as
              incurred.

              At December 31, 2002, a total amount of $ 406 is included in
              accrued expenses and other liabilities. The major components of
              the fiscal 2001 and 2002 restructuring costs are as follows:

<TABLE>
<CAPTION>
                                                                               LOSS ON
                                                                               DISPOSAL
                                                EMPLOYEE                     OF PROPERTY
                                              TERMINATION      FACILITY          AND           GOODWILL          TOTAL
                                                BENEFITS        CLOSURE       EQUIPMENT       IMPAIRMENT        CHARGE
                                            --------------- --------------- --------------  --------------- ---------------
<S>                                          <C>             <C>             <C>             <C>             <C>
               2001 PLAN:
               ----------
               Original provision            $      9,564    $      1,928    $      1,946    $      1,116    $     14,554
               Utilized:
                 Cash                              (7,997)         (1,051)              -               -          (9,048)
                 Non-cash                               -               -          (1,946)         (1,116)         (3,062)
                                            --------------- --------------- --------------  --------------- ---------------
               Balance as of                        1,567             877               -               -           2,444
                 December 31, 2001
               Utilized:
                 Cash                              (1,043)           (877)              -               -          (1,920)
                 Non-cash                               -               -               -               -               -
               Additional restructuring
               expenses (reversal of
               over accrued amounts)                 (524)            124               -               -            (400)
                                            --------------- --------------- --------------  --------------- ---------------
               Balance as of
                 December 31, 2002                      -             124               -               -             124
                                            --------------- --------------- --------------  --------------- ---------------
               2002 PLAN:
               ----------
               Original provision                     282               -               -               -             282
                                            --------------- --------------- --------------  --------------- ---------------
               Balance as of                          282               -               -               -             282
                 December 31, 2002
                                            --------------- --------------- --------------  --------------- ---------------
               2001 and 2002 plans as of
               December 31, 2002             $        282    $        124    $          -    $          -    $        406
                                            =============== =============== ==============  =============== ===============
</TABLE>

                                    - F-29 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES

              a.     Lease commitments:

                     The Company leases various office space, office equipment
                     and motor vehicles under operating leases.

                     1.     The Company's office space and office equipment are
                            rented under several operating leases.

                            Future minimum lease commitments under
                            non-cancelable operating leases for the years ended
                            December 31, are as follows:

                             2003                          $      5,358
                             2004                                 2,685
                             2005                                 2,485
                             2006                                 1,267
                             2007 and thereafter                    597
                                                          -----------------

                                                           $     12,392
                                                          =================

                            Rent expense for the years ended December 31, 2000,
                            2001 and 2002, was approximately $ 4,011, $ 5,190
                            and $ 5,761, respectively.

                     2.     The Company leases its motor vehicles under
                            cancelable operating lease agreements for periods
                            through 2003.

                            The minimum payment under these operating leases,
                            upon cancellation of these lease agreements,
                            amounted to $ 1,268 as of December 31, 2002.

                            Lease expenses for the years ended December 31,
                            2000, 2001 and 2002, were $ 70, $ 1,677 and $ 1,616,
                            respectively.

              b.     Other commitments:

                     1.     During 2002 the Company completed a contract
                            manufacturing agreement with a third party
                            contractor ("the contractor"). Under the
                            manufacturing agreement ("the agreement"), the
                            contractor provides the Company with a turnkey
                            manufacturing solution for all of its products. The
                            Company is liable under the agreement to purchase
                            above a certain level specified in the agreement,
                            which is based on historical level of orders to the
                            contractor, excess raw material and subassembly
                            inventories deemed obsolete or slow moving. As of
                            December 31, 2002 there were no such obsolete or
                            slow moving inventories.

                            In addition, the Company assumed an outsourcing
                            manufacturing agreement in the acquisition of TCS
                            (see also Note 1b). The minimum payments under this
                            non-cancelable manufacturing agreement for which
                            future benefit exists for the years ended December
                            31, are as follows:

                            2003                  $           3,109
                            2004                              2,104
                            2005                              1,448
                            2006                                515
                                                ---------------------

                                                  $           7,176
                                                =====================

                                    - F-30 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

                     2.     The company is committed under non-cancelable
                            services agreements to pay minimum payments to its
                            suppliers. The minimum payments under these services
                            agreements for the years ended December 31, are as
                            follows:

                            2003                  $           2,798
                            2004                              2,513
                            2005                              2,513
                            2006                                 94
                                                ---------------------

                                                  $           7,918
                                                =====================

              c.     Security interests and pledges:

                     The Company provided a guarantee in the amount of $ 52 to
                     the Israeli Chamber of Commerce and Industry to secure the
                     return of equipment shipped abroad; in the amount of $
                     1,133 in respect of liability for projects in progress; in
                     the amount of $ 1,901 for the performance of projects for
                     customers who made advance payments in respect of said
                     projects and in the amount of $ 257 to the Ministry of
                     Finance of Belgium in respect of VAT registration. The
                     Company also provided a guarantee in the amount of $ 34 in
                     respect of premises leased in France, $ 35 in respect of
                     warranty of its products, $ 330 in respect of bids and $ 36
                     in respect of customs.

              d.     Legal proceedings

                     1.     In June 2000, Dictaphone Corporation, one of the
                            Company's competitors, filed a patent infringement
                            claim relating to certain technology embedded in
                            some of the Company's products. The claim is for
                            damages for past infringement and enjoinment of any
                            continued infringement of Dictaphone patents. In the
                            court's discretion, the damages may be trebled and
                            attorney fees awarded. As a result the Company might
                            be forced to pay significant damages and licensing
                            fees, modify its business practices or even be
                            enjoined from conducting a significant part of its
                            U.S. business. Any such results could materially
                            harm the Company's business. The Company believes,
                            however, that it has a valid defense to this claim
                            and is vigorously defending it. The Company has
                            received notification from its insurance company
                            indicating that the claim is not covered by the
                            Company's insurance policy; however, the insurance
                            company has agreed to reimburse for all legal
                            expenses that the Company is expending in defense of
                            the claim while reserving its final decision on this
                            matter until the final outcome of the litigation.
                            The discovery period is closed, dispositive motions
                            have been filed with the Court, and the Company is
                            awaiting the Court's decisions on these motions as
                            well as scheduling for trial.

                     2.     On February 8, 2001, the trading price of the
                            Company's securities dropped, following the
                            Company's announcements that, among other things,
                            the Company would be restating its revenue for
                            fiscal year 1999 and the first three quarters of
                            2000 and that the Company was revising downward its
                            revenue estimates for the final quarter of 2000.
                            Thereafter, various plaintiffs filed in the United
                            States District Court for the District of New Jersey
                            fourteen putative class action securities lawsuits
                            against the Company and several of its present or
                            former officers and directors. The first of these
                            actions was commenced on February 13, 2001. All of
                            the actions have been allocated to the Newark
                            vicinage of the District of New Jersey, and all have
                            been assigned to the Hon. Joseph A. Greenaway, Jr.,
                            U.S.D.J.

                                    - F-31 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

                            The complaint in each action alleges that the
                            Company and the individual defendants violated
                            Section 10(b) of the Exchange Act, 15 U.S.C. ss.
                            78j(b), and Rule 10b-5 promulgated there under. The
                            plaintiffs also attempt to state a "control person"
                            claim against several of the individual defendants
                            under Section 20(a) of the Exchange Act, 15 U.S.C.
                            ss. 78t(a). While there are differences among the
                            fourteen complaints, the plaintiffs essentially
                            contend that the Company and the individual
                            defendants misrepresented to investors, either
                            affirmatively or through omissions, the Company's
                            financial results and the value of its securities.
                            The plaintiffs seek damages in an unspecified
                            amount. The plaintiffs in each such action seek to
                            represent a class of investors in the Company's
                            securities throughout a specified period,
                            approximately from February 2000 to February 2001.

                            On April 11, 2001, the Company and several of the
                            individual defendants successfully moved to
                            consolidate the various actions under the caption
                            "In re: Nice Systems Ltd. Securities Litigation,"
                            Master File No. 01-CV-00737 (JAG), and to establish
                            a schedule for the filing by plaintiffs of an
                            amended consolidated complaint and the Company and
                            the individual defendants' response to such
                            complaint.

                            By Order dated May 21, 2001, a group of plaintiffs
                            were appointed "lead plaintiffs" pursuant to the
                            Private Securities Litigation Reform Act of 1995, 15
                            U.S.C. ss. 78u-4(a)(3)(B). On August 20, 2001, the
                            Lead Plaintiffs filed and served a Consolidated
                            Amended Class Action Complaint, purporting to bring
                            their securities claims on behalf of a class of
                            persons who purchased the Company's ADSs between
                            November 3, 1999, and February 7, 2001. On October
                            22, 2001, the Company and the individual defendants
                            moved to dismiss the consolidated complaint in its
                            entirety, for failure to state a claim upon which
                            relief could be granted, for failure to plead fraud
                            with the requisite particularity and on grounds of
                            forum non conveniens in favor of proceedings in
                            Israel. Briefing on that motion was completed on
                            December 27, 2001.

                            Before that motion was decided by the Court, the
                            parties to the litigation entered into a settlement
                            of the claim, without any admission of liability or
                            wrongdoing on the Company's part, in the amount of $
                            10,000 dollars, including attorneys' fees. The
                            Company received the funds for this settlement
                            through its directors and officers' insurance
                            policy.

                            Because the action was brought as a class action,
                            the settlement was subject to court approval. By
                            Order dated April 7, 2003, the settlement was
                            approved by the United States District Court for the
                            District of New Jersey, over the objections of two
                            shareholders. On April 30, 2003, one of those
                            shareholders, James J. Hayes, appealed from that
                            Order to the United Stated Court of Appeals for the
                            Third Circuit.

NOTE 13:-     CREDIT LINES

              As of December 31, 2002, the Company had authorized credit lines
              from banks in the amount of $ 47,000. When utilized, the credit
              lines will be denominated in dollars and will bear interest at the
              rate of up to LIBOR + 1.6%. An amount of $ 22,000 out of the total
              credit lines is secured by the Company's marketable securities.
              There are no financial covenants associated with these credit
              lines. As of December 31, 2002, $2,200 were used for bank
              guarantees.

                                    - F-32 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 14:-     TAXES ON INCOME

              a.     Measurement of taxable income:

                     Results for tax purposes are measured in real terms, in
                     accordance with the changes in the Israeli Consumer Price
                     Index, or changes in the exchange rate of the NIS against
                     the dollar, for a "foreign investors" company. Until
                     taxable year 2001, NICE measured its results for tax
                     purposes in accordance with changes in the Israeli consumer
                     price index. Commencing with taxable year 2002, NICE has
                     elected to measure its results for tax purposes on the
                     basis of the changes in the exchange rate of NIS against
                     the dollar. This election obligates NICE for three years.

              b.     Tax benefits under the Israel Law for the Encouragement of
                     Capital Investments, 1959 ("the Law"):

                     Certain production facilities of NICE have been granted the
                     status of "Approved Enterprise" under the Law, in four
                     separate investment programs.

                     According to the provisions of the Law, NICE elected the
                     "alternative benefits" and has waived government grants in
                     return for a tax exemption.

                     Income derived from the first program is tax-exempt for a
                     period of four years, commencing 1999, and will be taxed at
                     the reduced corporate tax rate of 10%-25% (based on the
                     percentage of foreign ownership in each taxable year) for
                     an additional period of six years.

                     Income derived from the second program is tax-exempt for a
                     period of four years, commencing 1997, and will be taxed at
                     the reduced corporate tax rate of 10%-25% (based on the
                     percentage of foreign ownership in each taxable year) for
                     an additional period of six years.

                     Income derived from the third and fourth programs will be
                     tax-exempt for a period of two years, commencing with the
                     year the Company first earns taxable income, and will be
                     taxed at the reduced corporate tax rate of 10%-25% (based
                     on the percentage of foreign ownership in each taxable
                     year) for an additional period of eight years.

                     In December 2002, the Company filed an application for a
                     fifth "Approved Enterprise" investment program for its
                     facilities in Israel. To date, the Company has not received
                     a notice of approval for this fifth program.

                     The period of tax benefits detailed above, is subject to
                     limits of the earlier of 12 years from the commencement of
                     production or 14 years from receiving the approval.

                     The Law also entitles NICE to claim accelerated
                     depreciation on equipment used by the "Approved Enterprise"
                     during five tax years.

                     The entitlement to the above benefits is conditional upon
                     NICE's fulfilling the conditions stipulated by the above
                     Law, regulations published hereunder and the instruments of
                     approval for the specific investments in an "Approved
                     Enterprise". In the event of failure to comply with these
                     conditions, the benefits may be canceled and the Company
                     may be required to refund the amount of the benefits, in
                     whole or in part, including interest. As of December 31,
                     2002 the Company is in compliance with all the conditions
                     required by the law.

                                    - F-33 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)


NOTE 14:-     TAXES ON INCOME (CONT.)

                     The tax-exempt income attributable to the "Approved
                     Enterprise" can be distributed to shareholders without
                     subjecting NICE to taxes only upon the complete liquidation
                     of NICE. As of December 31, 2002, approximately $ 16,029
                     was derived from tax-exempt profits earned by NICE's
                     "Approved Enterprise". NICE has decided not to declare
                     dividends out of such tax-exempt income. Accordingly, no
                     deferred income taxes have been provided on income
                     attributable to NICE's "Approved Enterprises".

                     If the net retained tax exempt income is distributed in a
                     manner other than in the complete liquidation of NICE, it
                     would be taxed at the corporate tax rate applicable to such
                     profits as if NICE had not elected the alternative tax
                     benefits (currently - 20% of the gross distributed amount)
                     and an income tax liability would be incurred of
                     approximately $ 4,007 as of December 31, 2002.

                     Income from sources other than the "Approved Enterprise"
                     during the period of benefits will be taxable at the
                     regular corporate tax rate of 36%.

              c.     Tax benefits under the Israeli Law for the Encouragement of
                     Industry (Taxation), 1969:

                     NICE is an industrial company under the above law and as
                     such is entitled to certain tax benefits including
                     accelerated depreciation, deduction of public offering
                     expenses in three equal annual installments and
                     amortization of other intangible property rights as a
                     deduction for tax purposes.

              d.     Net operating loss carryforward:

                     As of December 31, 2002, the Company had carryforward tax
                     losses totaling approximately $ 69,752, most of which can
                     be carried forward and offset against taxable income
                     indefinitely. The remaining carryforward tax losses can be
                     carried forward and offset against taxable income with
                     expiration dates from 2003 to 2021. Utilization of U.S. net
                     operating losses may be subject to the substantial annual
                     limitation due to the "change in ownership" provisions of
                     the Internal Revenue Code of 1986 and similar state
                     provisions. The annual limitation may result in the
                     expiration of net operating losses before utilization.

                                    - F-34 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)


NOTE 14:-     TAXES ON INCOME (CONT.)

              e.     Deferred income taxes:

                     Deferred income taxes reflect the net tax effects of
                     temporary differences between the carrying amounts of
                     assets and liabilities for financial reporting purposes and
                     the amounts used for income tax purposes. Significant
                     components of the Company's deferred tax assets are as
                     follows:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                    --------------------------------------
                                                                                          2001                 2002
                                                                                    -----------------    -----------------
<S>                                                                                   <C>                  <C>
                     Net operating loss carryforward                                  $     11,954         $     10,994
                     Reserves and allowances                                                 3,320                3,787
                                                                                    -----------------    -----------------

                     Net deferred tax asset before valuation allowance                      15,274               14,781
                     Valuation allowance                                                   (15,274)             (14,781)
                                                                                    -----------------    -----------------

                     Net deferred tax asset                                           $          -         $          -
                                                                                    =================    =================

                     The Company has provided valuation allowances in respect of
                     deferred tax assets resulting from tax loss carryforwards,
                     due to its history of operating losses and current
                     uncertainty concerning its ability to realize these
                     deferred tax assets in the future.

              f.     A reconciliation between the theoretical tax expense,
                     assuming all income is taxed at the statutory tax rate
                     applicable to income of the Company, and the actual tax
                     expense as reported in the consolidated statements of
                     operations, is as follows:

                                                                                        YEAR ENDED DECEMBER 31,
                                                                          ---------------------------------------------------
                                                                               2000              2001              2002
                                                                          ---------------   ---------------   ---------------
                       Loss before taxes on income, as reported in the     $      (5,046)    $     (46,597)    $     (33,632)
                         consolidated statements of operations
                                                                          ===============   ===============   ===============

                       Statutory tax rate in Israel                                   36%               36%               36%
                                                                          ===============   ===============   ===============

                       Theoretical income tax benefit                      $      (1,817)    $     (16,775)    $     (12,108)
                       Losses and other items for which a valuation
                         allowance was provided                                    2,456            12,837             2,725
                       Non-deductible acquisition-related costs                    2,761               338            11,201
                       Tax exempt interest income                                 (2,117)           (1,554)           (1,145)
                       Utilization of net operating losses for which
                         a valuation allowance was provided                            -                 -              (676)
                       Non-deductible expenses                                       244               257               407
                       Increase (decrease) from difference between
                         Israeli currency income and US dollar income             (1,159)            5,031                 -
                       Other                                                         (95)               64               (54)
                                                                          ---------------   ---------------   ---------------

                       Actual tax expense                                  $         273     $         198     $         350
                                                                          ===============   ===============   ===============
</TABLE>

                                    - F-35 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 14:-     TAXES ON INCOME (CONT.)

              g.     Loss before taxes on income is comprised as follows:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                     ----------------------------------------------------
                                                                          2000               2001              2002
                                                                     ---------------    ---------------   ---------------
<S>                                                                   <C>                <C>               <C>
                       Domestic                                       $     2,740        $    (31,057)     $    (32,673)
                       Foreign                                             (7,786)            (15,540)             (959)
                                                                     ---------------    ---------------   ---------------

                                                                      $    (5,046)       $   (46,597)      $    (33,632)
                                                                     ===============    ===============   ===============

              h.     The provision for income taxes is
                     comprised as follows:

                      Current taxes                                   $       273        $       198        $       350
                                                                     ===============    ===============    ===============

                      Domestic                                        $        90        $       100        $       126
                      Foreign                                                 183                 98                224
                                                                     ---------------    ---------------    ---------------

                                                                      $       273        $       198        $       350
                                                                     ===============    ===============    ===============
</TABLE>

              i.     Israeli tax reform:

                     On January 1, 2003, a comprehensive tax reform took effect
                     in Israel. Pursuant to the reform, resident companies are
                     subject to Israeli tax on income accrued or derived in
                     Israel or abroad.

                     In addition, the concept of "controlled foreign
                     corporation" was introduced, according to which an Israeli
                     company may become subject to Israeli taxes on certain
                     income of a non-Israeli subsidiary if the subsidiary's
                     primary source of income is passive income (such as
                     interest, dividends, royalties, rental income or capital
                     gains). The tax reform also substantially changed the
                     system of taxation of capital gains.

NOTE 15:-     SHAREHOLDERS' EQUITY

              a.     The Ordinary shares of the Company are traded on the Tel
                     Aviv Stock Exchange and its ADSs are traded on NASDAQ.

                     In April 2000, the Company issued 150,000 ADSs to the sole
                     shareholder of CPS as part of the consideration for the
                     acquired shares of CPS (See Note 1d).

                     In December 2000, the Company issued 220,523 ADSs of NICE
                     as part of the consideration for the acquisition of certain
                     assets and liabilities of SCI (See Note 1c).

                     In December 2001, the Company issued 186,818 ADSs of NICE
                     as part of a settlement agreement with SCI (See Note 1c).

                     In November 2002, the Company issued 2,187,500 ADSs as part
                     of the consideration in the acquisition of certain assets
                     and liabilities of TCS (See Note 1b).

                     In November 2002, the Company released from escrow 50,000
                     ADSs of NICE as part of the settlement agreement with Mr.
                     Chapiewsky (See Note 1d).

                                    - F-36 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 15:-     SHAREHOLDERS' EQUITY (CONT.)

              b.     Share option plans:

                     In 1995, the Company adopted an employee share option plan
                     (the "1995 Option Plan"). Under the 1995 option plan,
                     employees and officers of the Company may be granted
                     options to acquire Ordinary shares. The options to acquire
                     Ordinary shares, which may be determined by the Board of
                     Directors of the Company, are granted at an exercise price,
                     subject to certain exceptions, of not less than the fair
                     market value of the Ordinary shares on the grant date.
                     8,310,566 of the 1995 options were granted at an exercise
                     price of not less than the fair market value of the
                     Ordinary shares at the date of grant.

                     The options generally vest gradually over a four-year
                     period from the date of grant. As of February 15, 2000, the
                     Board of Directors of the Company adopted a resolution
                     amending the exercise terms for any option to be granted
                     subsequent to February 15, 2000 under the 1995 Option Plan
                     whereby 25% of the stock options granted become exercisable
                     on the first anniversary of the date of grant and 6.25%
                     become exercisable once every quarter during the subsequent
                     three years. The options expire no later than 6 years from
                     the date of grant.

                     In 1996, the Company adopted the 1997 Executive Share
                     Option Plan (the "1997 Option Plan"). Under the terms of
                     the 1997 Option Plan, stock options will be exercisable
                     during a 60-day period ending four years after grant. The
                     plan met the definition of Time Accelerated Restricted
                     Stock Award Options ("TARSAP"). The TARSAP includes an
                     acceleration feature based on the following: if the
                     year-end earnings per share of the Company shall reach
                     certain defined targets, 40% of such stock options shall
                     become exercisable; if earnings per share shall reach
                     certain higher defined targets, an additional 30% of such
                     stock options shall become exercisable; and if earnings per
                     share shall reach certain higher defined targets, an
                     additional 30% of such stock options shall become
                     exercisable, provided that with respect to all of the
                     above-referenced periods, the operating profit of the
                     Company shall not be less than 10% of revenues and earnings
                     per share shall exclude any non-recurring expenses related
                     to mergers and acquisitions. Notwithstanding the foregoing,
                     none of the stock options shall be exercisable before the
                     expiration of two years from the date of issuance. 950,000
                     of the 1997 options were granted at an exercise price of
                     not less than the fair market value of the Ordinary shares
                     at the date of grant. As of December 31, 2002, none of the
                     targets specified under the TARSAP were met and accordingly
                     there was no acceleration of options.

                     In 2001, the Company adopted the 2001 Stock Option Plan
                     (the "2001 Option Plan"). The options to acquire Ordinary
                     shares, which may be determined by the Board of Directors
                     of the Company, are granted at an exercise price, of not
                     less than the fair market value of the Ordinary shares on
                     the grant date. 2,959,750 of the 2001 options were granted
                     at an exercise price of not less than the fair market value
                     of the Ordinary shares at the date of grant. Under the
                     terms of the 2001 Plan, a third of the stock options
                     granted became exercisable ten months after the grant date
                     and the remaining two thirds will become exercisable on the
                     first and second anniversaries of the first date of
                     exercise so long as the grantee is, subject to certain
                     exceptions, employed by the Company at the date the stock
                     option becomes exercisable. The third portion of the
                     Options may be exercised at the end of the second year
                     following the first date of exercise, if the Company meets
                     a pre-tax profit target of 20%, as determined by the Board
                     of Directors and at its discretion. Unless otherwise
                     determined by the Company's Board of Directors as of the
                     date of grant, the stock options expire six years after the
                     date of grant.

                                    - F-37 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 15:-     SHAREHOLDERS' EQUITY (CONT.)

                     In 2001, the Company adopted the 2001 Stock Option Plan for
                     Transitional Employees (the "2001 Transitional Employees
                     Plan") for the terminated employees as part of the
                     restructuring plan (See Note 11). The options to acquire
                     Ordinary shares, which may be determined by the Board of
                     Directors of the Company, are granted at an exercise price,
                     of not less than the fair market value of the Ordinary
                     shares on the grant date. 96,800 of the 2001 transitional
                     employees options were granted at an exercise price of not
                     less than the fair market value of the Ordinary shares at
                     the date of grant. Under the terms of the 2001 Transitional
                     Employees Plan, each share option granted generally becomes
                     exercisable upon the optionee's termination of employment
                     in accordance with the optionee's termination agreement
                     with the Company and will remain exercisable until the
                     first to occur of the date which is six months following
                     the date of such termination and the expiration of the
                     share option's term. Unless otherwise determined by the
                     Board of Directors as of the date of grant, the stock
                     options expired on December 31, 2002.

                     A summary of the Company's stock options activity and
                     related information for the years ended December 31, 2000,
                     2001 and 2002, is as follows:

<TABLE>
<CAPTION>

                                                           2000                     2001                     2002
                                                 ---------------------------------------------------------------------------
                                                               WEIGHTED-                WEIGHTED                 WEIGHTED
                                                               AVERAGE                  AVERAGE                  AVERAGE
                                                  NUMBER OF    EXERCISE     NUMBER OF   EXERCISE     NUMBER OF   EXERCISE
                                                   OPTIONS       PRICE       OPTIONS      PRICE       OPTIONS      PRICE
                                                 ------------ -----------  ----------- -----------  ----------- ------------
<S>                                               <C>          <C>          <C>         <C>          <C>         <C>
                      Outstanding at the          3,036,591    $   26.37    4,463,523   $    50.58   6,408,825   $     29.31
                        beginning of the year
                      Granted                     3,116,200    $   69.48    4,030,700   $    12.62     981,000   $     11.49
                      Exercised                    (615,643)   $   21.79      (33,809)  $    11.61     (60,830)  $     12.10
                      Forfeited                    (981,125)   $   51.83   (2,051,589)  $    43.08  (1,363,015)  $     32.87
                      Cancelled                     (92,500)   $   70.88            -   $        -           -   $         -
                      Outstanding at the end of
                        the year                  4,463,523    $   50.58    6,408,825   $    29.31   5,965,980   $     25.74
                                                 ============ ===========  =========== ===========  =========== ============
                      Exercisable at the end of
                        the year                    307,744    $   27.45    1,393,959    $   46.25   2,373,039   $     34.46
                                                 ============ ===========  =========== ===========  =========== ============

                     The options outstanding as of December 31, 2002, have been
                     separated into exercise price categories as follows:
                                                                                                               WEIGHTED
                                             OPTIONS         WEIGHTED                         OPTIONS           AVERAGE
                                           OUTSTANDING        AVERAGE       WEIGHTED        EXERCISABLE        EXERCISE
                                              AS OF          REMAINING       AVERAGE           AS OF           PRICE OF
                         RANGES OF         DECEMBER 31,     CONTRACTUAL     EXERCISE       DECEMBER 31,         OPTIONS
                       EXERCISE PRICE          2002             LIFE          PRICE            2002           EXERCISABLE
                     ------------------- ----------------- -------------- --------------  ----------------  ----------------
                             $                                (YEARS)           $                                  $
                     -------------------                   -------------- --------------                    ----------------

                        7.83 - 11.14           656,500           5.63           10.09             52,500          10.95
                       12.00 - 16.81         3,355,494           4.55           12.81            970,937          12.69
                       21.38 - 30.13           508,194           1.77           23.06            427,319          23.07
                        40.94 - 55.5           637,280           3.47           51.02            389,530          50.19
                        64.88 -76.25           808,512           3.28           73.88            532,753          74.09
                                         -----------------                                ----------------

                                             5,965,980           4.14           25.74          2,373,039          34.46
                                         ================= ============== ==============  ================  ================
</TABLE>

                                    - F-38 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 15:-     SHAREHOLDERS' EQUITY (CONT.)

                     When the Company has recorded deferred stock compensation
                     for options issued with an exercise price below the fair
                     value of the Ordinary shares, the deferred compensation is
                     amortized and recorded as compensation expense ratably over
                     the vesting period of the options.

                     Weighted average fair values and weighted average exercise
                     prices of options whose exercise price is equal, less or
                     higher than the market price of the shares at date of grant
                     are as follows:

<TABLE>
<CAPTION>
                                              WEIGHTED AVERAGE FAIR VALUE OF          WEIGHTED AVERAGE EXERCISE PRICE OF
                                           OPTIONS GRANTED AT AN EXERCISE PRICE      OPTIONS GRANTED AT AN EXERCISE PRICE
                                         ----------------------------------------- ----------------------------------------
                                                                      YEAR ENDED DECEMBER 31,
                                         ----------------------------------------------------------------------------------
                                             2000          2001          2002          2000          2001         2002
                                         ------------- ------------- ------------- ------------- ------------ -------------
<S>                                       <C>           <C>           <C>           <C>           <C>          <C>
                      Less than fair
                      value at date of
                      grant               $  55.11      $      -      $     -       $  22.707     $       -    $       -
                                         ============= ============= ============= ============= ============ =============
                      Equal to fair
                      value at date of
                      grant               $  38.93      $   5.66      $     8.03    $  69.042     $  12.664    $  12.991
                                         ============= ============= ============= ============= ============ =============
                      Higher than fair
                      value at date of
                      grant               $      -      $      -      $     5.19    $       -     $       -    $  10.507
                                         ============= ============= ============= ============= ============ =============
</TABLE>

              c.     Employee Stock Purchase Plan:

                     In February 1999, the Company's Board of Directors adopted
                     the Employee Stock Purchase Plan (the "Purchase Plan").
                     Eligible employees can have up to 10% of their earnings
                     withheld, up to certain maximums, to be used to purchase
                     Ordinary shares. The price of Ordinary share purchased
                     under the Purchase Plan will be equal to 85% of the lower
                     of the fair market value of the Ordinary share on the
                     commencement date of each offering period or on the
                     semi-annual purchase date.

                     During 2000, 2001 and 2002, employees purchased 28,626,
                     128,303 and 131,667 shares at average prices of $ 32.89, $
                     11.21 and $ 10.51 per share, respectively.

              d.     Dividends:

                     Dividends, if any, will be paid in NIS. Dividends paid to
                     shareholders outside Israel may be converted to dollars on
                     the basis of the exchange rate prevailing at the date of
                     the conversion. The Company does not intend to pay cash
                     dividends in the foreseeable future.

                                    - F-39 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 16: -    MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION

              a.     Summary information about geographic areas:

                     The Company manages its business on a basis of one
                     reportable segment. See Note 1a for a brief description of
                     the Company's business. The following data is presented in
                     accordance with SFAS No. 131 "Disclosure About Segments of
                     an Enterprise and Related Information". Total revenues are
                     attributed to geographic areas based on the location of end
                     customers.

                     The following presents total revenues and long-lived assets
                     for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                     2000                         2001                        2002
                                          ---------------------------  ---------------------------  --------------------------
                                             TOTAL       LONG-LIVED       TOTAL       LONG-LIVED       TOTAL      LONG-LIVED
                                            REVENUES       ASSETS       REVENUES        ASSETS       REVENUES       ASSETS
                                          ------------- -------------  ------------  -------------  ------------  ------------
<S>                                       <C>           <C>            <C>           <C>            <C>           <C>
                     Americas             $    90,540   $    37,213    $    66,324   $    34,183    $    88,426   $    10,843
                     EMEA    (*                39,901            97         34,955           110         47,684        18,489
                     Far East                  18,232             -         21,015            87         22,829            95
                     Israel                     4,490        28,367          4,814        27,831          3,566        42,818
                                          ------------- -------------  ------------  -------------  ------------  ------------

                                          $   153,163   $    65,677    $   127,108   $    62,211    $   162,505   $    72,245
                                          ============= =============  ============  =============  ============  ============

                     *)  Includes Europe, the Middle East (excluding Israel)
                         and Africa.

              b.     Product lines:

                     Total revenues from external customers divided on the basis
                     of the Company's product lines are as follows:


                                                                                        YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------------------
                                                                              2000              2001              2002
                                                                        ----------------  -----------------  ---------------

                       Digital audio and applications                     $    128,655      $     99,785      $     132,408
                       Digital video                                            15,824            14,084             22,933
                       COMINT                                                    8,684            13,239              7,164
                                                                        ----------------  -----------------  ---------------

                                                                          $    153,163      $    127,108      $     162,505
                                                                        ================  =================  ===============

                     c.     Major customers data as a percentage of total
                            revenues:

                            Customer A                                            18.6              12.3               22.3
                                                                        ================  =================  ===============
</TABLE>

                                    - F-40 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 17:-     SELECTED STATEMENTS OF OPERATIONS DATA

                     a.     Research and development, net:

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                           -----------------------------------------------------
                                                                                2000               2001               2002
                                                                           ---------------    ---------------    ---------------
<S>                                                                          <C>                <C>                <C>
                            Total costs                                      $     25,406       $     26,017       $     24,742
                            Less: grants and participations                        (1,174)            (1,392)            (2,208)
                            Less - capitalization of software
                              development costs                                    (4,730)            (5,435)            (4,609)
                                                                           ---------------    ---------------    ---------------

                                                                             $     19,502       $     19,190       $     17,925
                                                                           ===============    ===============    ===============

                     b.     Financial income, net:

                            Financial income:
                              Interest and amortization/accretion of
                                premium/discount of marketable securities    $      3,326       $      3,371       $      2,747
                              Interest                                              3,433              1,294                551
                              Foreign currency translation                              -                166              1,411
                              Other                                                     -                 12                  -
                                                                           ---------------    ---------------    ---------------

                                                                                    6,759              4,843              4,709
                                                                           ---------------    ---------------    ---------------
                            Financial expenses:
                              Interest                                                (80)               (38)               (15)
                              Foreign currency translation                           (163)                 -                (95)
                              Other                                                  (328)              (551)              (607)
                                                                           ---------------    ---------------    ---------------

                                                                                     (571)              (589)              (717)
                                                                           ---------------    ---------------    ---------------

                                                                             $      6,188       $      4,254       $      3,992
                                                                           ===============    ===============    ===============

                     c.     Amortization of acquired intangible assets,
                            restructuring expenses, in-process research and
                            development and goodwill impairment:

                            Amortization of acquired intangibles             $        860       $      3,413       $          -
                            Restructuring expenses (Note 11)                            -             14,554               (118)
                            In-process research and development
                              write-off (Note 1b, d)                                6,786                  -              1,270
                            Goodwill impairment                                         -                  -             28,260
                            Other                                                       -                  -               (320)
                                                                           ---------------    ---------------    ---------------

                                                                             $      7,646       $     17,967       $     29,092
                                                                           ===============    ===============    ===============

                     d.     Advertising expenses                             $      1,485      $      1,265       $      1,760
                                                                           ===============    ===============    ===============
</TABLE>

                                    - F-41 -
<PAGE>

                                              NICE SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 17:-     SELECTED STATEMENTS OF OPERATIONS DATA (CONT.)

                     e.     Net loss per share:

                            The following table sets forth the computation of
                            basic and diluted net loss per share:

                            1.     Numerator:

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                           -----------------------------------------------------
                                                                                2000               2001               2002
                                                                           ---------------    ---------------    ---------------
<S>                                                                          <C>                <C>                <C>
                                   Numerator for basic and diluted net
                                     loss per share -
                                   Loss available to Ordinary
                                     shareholders                            $     (5,319)      $    (46,795)      $    (33,982)
                                                                           ===============    ===============    ===============

                            2.     Denominator (in thousands):

                                   Denominator for basic net loss per
                                     share -
                                   Weighted average number of shares                12,317            13,047             13,795
                                                                            ===============   ===============    ===============

                                   Denominator for diluted net loss per
                                     share - adjusted weighted average
                                     shares assuming exercise of options            12,317            13,047             13,795
                                                                            ===============   ===============    ===============
</TABLE>

                                   The effect of the inclusion of the options
                                   and warrants in 2000, 2001 and 2002 would be
                                   anti-dilutive. Because of the loss in 2000,
                                   2001 and 2002, all potential dilutive
                                   securities are anti-dilutive.


                               - - - - - - - - - -


                                    - F-42 -

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
  filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Ra'anana,
State of Israel, on the 26th day of June, 2003.


                                NICE-SYSTEMS LTD.



                                By: /S/ Haim Shani
                                   ------------------------------------------
                                   Haim Shani
                                   President and Chief Executive Officer

<PAGE>

CERTIFICATIONS

I, Haim Shani, Chief Executive Officer, certify that:

1.   I have reviewed this annual report on Form 20-F of NICE-Systems Ltd.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.   designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b.   evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c.   presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

a.   all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b.   any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date: June 26,2003

                                       By: /s/ Haim Shani
                                           ---------------
                                           Haim Shani
                                           President and Chief Executive Officer

<PAGE>

CERTIFICATIONS

I, Lauri Hanover, Chief Financial Officer, certify that:

1.   I have reviewed this annual report on Form 20-F of NICE-Systems Ltd.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.   designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b.   evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c.   presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

a.   all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b.   any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date: June 26,2003


                                     By: /s/ Lauri Hanover
                                         -----------------
                                         Lauri Hanover
                                         Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1.2
<SEQUENCE>3
<FILENAME>tex1_2-29996.txt
<DESCRIPTION>EX-1.2
<TEXT>
<PAGE>

                                                                     EXHIBIT 1.2

                          THE COMPANIES LAW, 5759-1999
                          ----------------------------

                           A COMPANY LIMITED BY SHARES
                           ---------------------------


                             ARTICLES OF ASSOCIATION
                             -----------------------

                                       OF

                                NICE-SYSTEMS LTD.


1.   DEFINITIONS; INTERPRETATION

     (a) "Companies Law" - the Israeli Companies Law, 5759-1999 as the same
shall be amended from time to time, or any other law which shall replace that
Law, together with any amendments and regulations thereto.

     (b) "Companies Ordinance" - those sections of the Israeli Companies
Ordinance [New Version] 5743-1983 that shall remain in force after the date of
the coming into force of the Companies Law, as the same shall be amended from
time to time.

     (c) Unless the subject or the context otherwise requires: words and
expressions defined in the Companies Law and in the Companies Ordinance, as the
case may be, shall have the same meanings herein; words and expressions
importing the singular shall include the plural and vice versa; words and
expressions importing the masculine gender shall include the feminine gender;
and words and expressions importing persons shall include bodies corporate.

     (d) The captions in these Articles are for convenience only and shall not
be deemed a part hereof or affect the construction of any provision hereof.

2.   OBJECT AND PURPOSE OF THE COMPANY

     The object and the purpose of the Company are as set forth in Section 2 of
the Memorandum of Association of the Company.

3.   LIMITATION OF LIABILITY

     The liability of the shareholders of the Company is limited as set forth in
Section 3 of the Memorandum of Association of the Company.

<PAGE>

                                  SHARE CAPITAL

4.   SHARE CAPITAL

     The share capital of the Company is fifty million New Israeli Shekels (NIS
50,000,000) divided into fifty million (50,000,000) Ordinary Shares of nominal
value of NIS 1.00 each ("Ordinary Shares").

5.   INCREASE OF SHARE CAPITAL

     (a)  The Company may, from time to time, by resolution of the shareholders,
whether or not all the shares then authorized have been issued, resolve to
increase its share capital by the creation of new shares. Any such increase
shall be in such amount and shall be divided into shares of such nominal
amounts, and such shares shall confer such rights and preferences, and shall be
subject to such restrictions, as such resolution shall provide.

     (b)  Except to the extent otherwise provided in such resolution, such new
shares shall be subject to all the provisions applicable to the shares of the
original share capital.

6.   THE RIGHTS OF ORDINARY SHARES

     The Ordinary Shares confer upon the holders thereof all rights accruing to
a shareholder of the Company, as provided in these Articles, including, INTER
ALIA, the right to receive notices of (in the manner proscribed in Articles 20
and 50 of these Articles), and to attend, shareholder meetings of the
shareholders; for each share held - the right to one vote at all shareholders'
meetings for all purposes, and to share equally, on a per share basis, in such
dividends as may be declared by the Board of Directors in accordance with the
terms of these Articles and the Companies Law; and upon liquidation or
dissolution, the right to participate in the distribution of any surplus assets
of the Company legally available for distribution to shareholders after payment
of all debts and other liabilities of the Company, in accordance with the terms
of these Articles and the law. All Ordinary Shares rank PARI PASSU in all
respects with each other.

7.SPECIAL RIGHTS; MODIFICATIONS OF RIGHTS

     (a)  Subject to the provisions of any law, the Company may, from time to
time, by resolution of the shareholders, provide for shares with such preferred
or deferred rights or rights of redemption or other special rights and/or such
restrictions, whether in regard to dividends, voting, repayment of share capital
or otherwise, as may be stipulated in such resolution.

     (b)  (i) If at any time the share capital is divided into different classes
of shares, the rights attached to any class, unless otherwise provided by these
Articles, may be modified or abrogated by the Company, by a shareholder
resolution, subject to the consent of the holders of a majority of the voting
power of such class by written consent or at a separate General Meeting of the
holders of the shares of such class.

          (ii)     The provisions of these Articles relating to General Meetings
shall, mutatis mutandis, apply to any separate General Meeting of the holders of
the shares of a particular class.

                                     - 2 -
<PAGE>

          (iii)    Unless otherwise provided by these Articles, the enlargement
of an existing class of shares, or the issuance of additional shares thereof,
shall not be deemed, for purposes of this Article 7(b), to modify or abrogate
the rights attached to the previously issued shares of such class or of any
other class.

8.   CONSOLIDATION, SUBDIVISION, CANCELLATION AND REDUCTION OF SHARE CAPITAL

     (a)  The Company may (subject, however, to the provisions of Article 7(b)
hereof and to applicable law), from time to time, by resolution of the Company's
shareholders:

          (i)      consolidate and divide all or any of its issued or unissued
share capital into shares of larger nominal value than its existing shares,

          (ii)     subdivide its shares (issued or unissued) or any of them,
into shares of smaller nominal value than is fixed by these Articles (subject to
the provisions of the Companies Law), and the shareholders resolution whereby
any share is subdivided may determine that, as among the holders of the shares
resulting from such subdivision, one or more of the shares may, as compared with
the others, have any such preferred or deferred rights or rights of redemption
or other special rights, or be subject to any such restrictions, as the Company
has power to attach to unissued or new shares.

          (iii)    cancel any shares which, at the date of the adoption of such
resolution, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
cancelled, or

          (iv)     reduce its share capital in any manner, and with and subject
to any incident authorized, and consent required, by law.

     (b)  With respect to any consolidation of issued shares into shares of
larger nominal value, and with respect to any other action which may result in
fractional shares, the Board of Directors may settle any difficulty which may
arise with regard thereto, as it deems fit, including, INTER ALIA, resort to one
or more of the following actions:

          (i)      determine, as to the holder of shares so consolidated, which
issued shares shall be consolidated into each share of larger nominal value;

          (ii)     allot, in contemplation of or subsequent to such
consolidation or other action, such shares or fractional shares sufficient to
preclude or remove fractional share holdings;

          (iii)    redeem, in the case of redeemable preference shares, and
subject to applicable law, such shares or fractional shares sufficient to
preclude or remove fractional share holdings;

          (iv)     cause the transfer of fractional shares by certain
shareholders of the Company to other shareholders thereof so as to most
expediently preclude or remove any fractional shareholdings, and cause the
transferees to pay the transferors the fair value of fractional shares so
transferred, and the Board of Directors is hereby authorized to act as agent for
the transferors and transferees with power of substitution for purposes of
implementing the provisions of this sub-Article 8(b)(iv).

                                     - 3 -
<PAGE>

     (c)  The notice of a General Meeting with respect to the adoption of a
resolution under Article 8(a) above, shall specify the actions to be adopted by
the Board of Directors under Article 8(b) above.


                                     SHARES

9.   ISSUANCE OF SHARE CERTIFICATES; REPLACEMENT OF LOST CERTIFICATES

     (a)  Share certificates of issued shares shall, if issued, be issued under
the seal or the rubber stamp of the Company or the Company printed name, and
shall bear the signatures of two Directors, or of one Director and of the
Secretary of the Company, or of any other person or persons authorized thereto
by the Board of Directors.

     (b)  Each shareholder, registered in the Register of Shareholders (as
defined in the Companies law), shall be entitled to one numbered certificate for
all the shares of any class registered in his name, or if the Board of Directors
so approves, to several certificates, each for one or more of such shares, in
the form as shall be determined by the Board of Directors and according to the
law.

     (c)  A share certificate registered in the names of two or more persons
shall be delivered to the person first named in the Register of Shareholders in
respect of such co-ownership.

     (d)  If a share certificate is defaced, lost or destroyed, it may be
replaced, provided that the original certificate is presented to and destroyed
by the Board of Directors or it is proved to the satisfaction of the Board of
Directors that the certificate has been lost or destroyed, and upon payment of
such fee, and upon the furnishing of such evidence of ownership and such
indemnity or security, as the Board of Directors may think fit.

10.  ALLOTMENT OF SHARES

     The unissued shares shall be under the control of the Board of Directors,
who shall have the power to allot shares or otherwise dispose of them to such
persons, on such terms and conditions (including INTER ALIA terms relating to
calls as set forth in Article 11(f) hereof), and either at par or at a premium,
and at such times, as the Board of Directors may think fit, and the power to
grant to any person the option to acquire from the Company any shares, either at
par or at a premium, during such time and for such consideration as the Board of
Directors may think fit.

11.  CALLS ON SHARES; FORFEITURE AND SURRENDER

     (a)  The Board of Directors may, from time to time, make such calls as it
may think fit upon a shareholder in respect of any sum unpaid in respect of
shares held by such shareholder which is not, by the terms of allotment thereof
or otherwise, payable at a fixed time, and each

                                     - 4 -
<PAGE>

shareholder shall pay the amount of every call so made upon him (and of each
installment thereof if the same is payable in installments), to the person(s)
and at the time(s) and place(s) designated by the Board of Directors, as any
such time(s) may be thereafter extended and/or such person(s) or place(s)
changed. Unless otherwise stipulated in the resolution of the Board of Directors
(and in the notice hereafter referred to), each payment in response to a call
shall be deemed to constitute a pro rata payment on account of all shares in
respect of which such call was made.

     (b)  Notice of any call shall be given in writing to the shareholder(s) in
question not less than fourteen (14) days prior to the time of payment,
specifying the time and place of payment, and designating the person to whom
such payment shall be made, provided, however, that before the time for any such
payment, the Board of Directors may, by notice in writing to such
shareholder(s), revoke such call in whole or in part, extend such time, or alter
such person and/or place. In the event of a call payable in installments, only
one notice thereof need be given.

     (c)  If, by the terms of allotment of any share or otherwise, any amount is
made payable at any fixed time, every such amount shall be payable at such time
as if it were a call duly made by the Board of Directors and of which due notice
had been given, and all the provisions herein contained with respect to such
calls shall apply to each such amount.

     (d)  The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof and all interest payable thereon.

     (e)  Any amount unpaid in respect of a call shall bear interest from the
date on which it is payable until actual payment thereof, at such rate (not
exceeding the then prevailing debitory rate charged by leading commercial banks
in Israel), and at such time(s) as the Board of Directors may prescribe.

     (f)  Upon the allotment of shares, the Board of Directors may provide for
differences among the allottees of such shares as to the amount of calls and/or
the times of payment thereof.

     (g)  If any shareholder fails to pay any amount payable in respect of a
call, or interest thereon as provided for herein, on or before the day fixed for
payment of the same, the Company, by resolution of the Board of Directors, may
at any time thereafter, so long as the said amount or interest remains unpaid,
forfeit all or any of the shares in respect of which said call had been made.
Any expense incurred by the Company in attempting to collect any such amount or
interest, including, inter alia, attorneys' fees and costs of suit, shall be
added to, and shall, for all purposes (including the accrual of interest
thereon), constitute a part of the amount payable to the Company in respect of
such call.

     (h)  Upon the adoption of a resolution of forfeiture, the Board of
Directors shall cause notice thereof to be given to such shareholder, which
notice shall state that, in the event of the failure to pay the entire amount so
payable within a period stipulated in the notice (which period shall not be less
than fourteen (14) days and which may be extended by the Board of Directors),
such shares shall be ipso facto forfeited, provided, however, that, prior to the
expiration of such period, the Board of Directors may nullify such resolution of
forfeiture, but no such nullification shall stop the Board of Directors from
adopting a further resolution of forfeiture in respect of the non-payment of the
same amount.

                                     - 5 -
<PAGE>

     (i)  Whenever shares are forfeited as herein provided, all dividends
theretofore declared in respect thereof and not actually paid shall be deemed to
have been forfeited at the same time.

     (j)  The Company, by resolution of the Board of Directors, may accept the
voluntary surrender of any share.

     (k)  Any share forfeited or surrendered as provided herein shall become the
property of the Company, and the same, subject to the provisions of these
Articles, may be sold, re-allotted or otherwise disposed of as the Board of
Directors thinks fit.

     (l)  Any shareholder whose shares have been forfeited or surrendered shall
cease to be a shareholder in respect of the forfeited or surrendered shares, but
shall, notwithstanding, be liable to pay, and shall forthwith pay, to the
Company, all calls, interest and expenses owing upon or in respect of such
shares at the time of forfeiture or surrender, together with interest thereon
from the time of forfeiture or surrender until actual payment, at the rate
prescribed in Article 11(e) above, and the Board of Directors, in its
discretion, may enforce the payment of such moneys, or any part thereof, but
shall not be under any obligation to do so. In the event of such forfeiture or
surrender, the Company, by resolution of the Board of Directors, may accelerate
the date(s) of payment of any or all amounts then owing by the shareholder in
question (but not yet due) in respect of all shares owned by such shareholder,
solely or jointly with another, and in respect of any other matter or
transaction whatsoever.

     (m)  The Board of Directors may at any time, before any share so forfeited
or surrendered shall have been sold, re-allotted or otherwise disposed of,
nullify the forfeiture or surrender on such conditions as it thinks fit, but no
such nullification shall stop the Board of Directors from re-exercising its
powers of forfeiture pursuant to this Article 11.

     (n)  Except to the extent the same may be waived or subordinated in writing
and to the extent permitted by applicable law, the Company shall have a first
and paramount lien upon all the shares registered in the name of each
shareholder (without regard to any equitable or other claim or interest in such
shares on the part of any other person), and upon the proceeds of the sale
thereof, for his debts, liabilities and engagements arising from any cause
whatsoever, solely or jointly with another, to or with the Company, whether the
period for the payment, fulfillment or discharge thereof shall have actually
arrived or not. Such lien shall extend to all dividends from time to time
declared in respect of such share. Unless otherwise provided, the registration
by the Company of a transfer of shares shall be deemed to be a waiver on the
part of the Company of the lien (if any) existing on such shares immediately
prior to such transfer.

     (o)  The Board of Directors may cause the Company to sell any shares
subject to such lien when any such debt, liability or engagement has matured, in
such manner as the Board of Directors may think fit, but no such sale shall be
made unless such debt, liability or engagement has not been satisfied within
fourteen (14) days after written notice of the intention to sell shall have been
served on such shareholder, his executors or administrators.

     (p)  The net proceeds of any such sale, after payment of the costs thereof,
shall be applied in or toward satisfaction of the debts, liabilities or
engagements of such shareholder (whether or not the same have matured), or any
specific part of the same (as the Company may

                                     - 6 -
<PAGE>

determine), and the residue (if any) shall be paid to the shareholder, his
executors, administrators or assigns.


                               TRANSFER OF SHARES

12.  EFFECTIVENESS AND REGISTRATION

     No transfer of shares shall be registered in the Register of Shareholders
unless a proper instrument of transfer (in form and substance satisfactory to
the Secretary of the Company) has been submitted to the Company, together with
such other evidence of title as the Board of Directors may reasonably require.
Until the transferee has been registered in the Register of Shareholders in
respect of the shares so transferred, the Company may continue to regard the
transferor as the owner thereof.

                             TRANSMISSION OF SHARES

13.  DECEDENTS' SHARES

     (a)  In case of a share registered in the names of two or more holders
established by law, the Company may recognize the survivor(s) as the sole
owner(s) thereof unless and until the provisions of Article 13(b) have been
effectively invoked.

     (b)  Any person becoming entitled to a share in consequence of the death of
any person, upon producing evidence of the grant of probate or letters of
administration or declaration of succession (or such other evidence as the Board
of Directors may reasonably deem sufficient that he sustains the character in
respect of which he proposes to act under this Article or of his title), shall
be registered as a shareholder in respect of such share, or may, subject to the
regulations as to transfer herein contained, transfer such share.

14.  RECEIVERS AND LIQUIDATORS

     (a)  The Company may recognize the receiver, liquidator or similar official
of any corporate shareholder in winding-up or dissolution, or the receiver,
trustee or similar official in bankruptcy or in connection with the
reorganization of any shareholder, as being entitled to the shares registered in
the name of such shareholder.

     (b)  The receiver, liquidator or similar official of a corporate
shareholder in winding-up or dissolution, or the receiver, trustee or similar
official in bankruptcy or in connection with the reorganization of any
shareholder, upon producing such evidence as the Board of Directors may deem
sufficient that he sustains the character in respect of which he proposes to act
under this Article or of his title, shall with the consent of the Board of
Directors (which the Board of Directors may grant or refuse in its absolute
discretion), be registered as a shareholder in respect of such shares in the
Register of Shareholders, or may, subject to the regulations as to transfer
herein contained, transfer such shares.

                                     - 7 -
<PAGE>

                 RECORD DATE WITH RESPECT TO OWNERSHIP OF SHARES

15.  RECORD DATE FOR GENERAL MEETINGS

     The shareholders entitled to receive notice of, to participate in and to
vote thereon at a General Meeting, or to express consent to or dissent from any
corporate action in writing, shall be the shareholders on the date set in the
resolution of the Board of Directors to convene the General Meeting, provided
that, such date shall not be earlier than forty (40) days prior to the date of
the General Meeting and not later than four (4) days prior to the date of such
General Meeting, or different periods as shall be permitted by law. A
determination of shareholders of record with respect to a General Meeting shall
apply to any adjournment of such meeting.

16.  RECORD DATE FOR DISTRIBUTION OF DIVIDENDS

     The shareholders entitled to receive dividends shall be the shareholders on
the date upon which it was resolved to distribute the dividend or at such later
date as shall be provided in the resolution in question.


                                GENERAL MEETINGS

17.  ANNUAL GENERAL MEETING

     An Annual General Meeting shall be held once in every calendar year at such
time (within a period of not more than fifteen (15) months after the last
preceding Annual General Meeting) and at such place either within or without the
State of Israel as may be determined by the Board of Directors.


18.  SPECIAL GENERAL MEETING

     All General Meetings other than Annual General Meetings shall be called
"SPECIAL GENERAL MEETINGS." The Board of Directors may, whenever it thinks fit,
convene a Special General Meeting at such time and place, within or without the
State of Israel, as may be determined by the Board of Directors. Special General
Meetings may also be convened upon requisition in accordance with the Companies
Law.

19.  POWERS OF THE GENERAL MEETING

     Subject to the provisions of the Companies Law and of these Articles, the
resolutions in respect to the following matters shall be adopted by the General
Meeting:

     (a)  Amendments to the Articles, as set forth in Section 20 of the
Companies Law.

     (b)  Exercise of the authorities of the Board of Directors in accordance
with the provisions of Section 52(a) of the Companies Law.

     (c)  Appointment of the outside auditor(s) of the Company, the
determination of its/their terms of engagement with the Company and termination
of its/their engagement with

                                     - 8 -
<PAGE>

the Company, all in accordance with the provisions of Sections 154-167 of the
Companies Law.

     (d)  Appointment of independent ("external") Directors in accordance with
the provisions of Section 239 of the Companies Law ("External Directors").

     (e)  Approval of actions and transactions that require the approval of the
General Meeting pursuant to Sections 255 and 268-275 of the Companies Law.

     (f)  An increase and a decrease of the authorized share capital of the
Company, pursuant to Sections 286 and 287 of the Companies Law.

     (g)  A merger, as set forth in Section 320(a) of the Companies Law.

20.  NOTICE OF GENERAL MEETINGS

     (a)  Not less than twenty-one (21) days' prior notice shall be given of
every General Meeting (the "Notice"). The Notice shall be published in two (2)
newspapers in Israel and as shall be required by law or rules and regulations of
the stock exchanges on which the Company's shares are listed. The Notice shall
specify the place, date and hour of the General Meeting, its agenda, a summary
of proposed resolutions and the procedure for voting in such General Meeting by
proxy statement and any other matter as shall be required by law. Notices shall
not be sent to each of the shareholders registered in the Company's Register of
Shareholders.

     (b)  The validity of any resolutions carried at a General Meeting shall not
be affected if the Company, by oversight, has not sent a notice of the convening
of the meeting, or has sent an incomplete or incorrect notice regarding the
convening of the meeting or its agenda, or has not served a notice as aforesaid
or has delayed in sending or delivering the said notice.

                         PROCEEDINGS AT GENERAL MEETINGS

21.  QUORUM

     (a)  Two or more shareholders (not in default in payment of any sum
referred to in Article 26(a) hereof), present in person or by proxy or by
written ballot, as shall be permitted, and holding shares conferring in the
aggregate twenty-five percent (25%) or more of the voting power of the Company,
shall constitute a quorum at General Meetings.

     (b)  If within half an hour from the time appointed for the meeting a
quorum is not present, if convened upon requisition under sections 63, 64 or 65
of the Companies Law, the meeting shall be dissolved, but in any other case it
shall stand adjourned to the same day in the next week, at the same time and
place, or to such day and at such time and place as specified in the Notice of
such meeting or as the Chairman may determine with the consent of the holders of
a majority of the voting power represented at the meeting in person or by proxy
or by written ballot, as shall be permitted, and voting on the question of
adjournment. At such adjourned meeting, any two (2) shareholders (not in default
as aforesaid) present in person or by proxy or by written ballot, as shall be
permitted, shall constitute a quorum.

                                     - 9 -
<PAGE>

     (c)  No business shall be transacted at a General Meeting, or at any
adjournment thereof, unless the requisite quorum is present when the meeting
proceeds to business.

22.  CHAIRMAN

     Any member of the Board of Directors shall preside as Chairman at any
General Meeting of the Company. If there is no such member, or if at any meeting
such member is not present within fifteen (15) minutes after the time fixed for
holding the meeting or is unwilling to act as Chairman, the shareholders present
shall choose someone of their member to be Chairman. The office of Chairman
shall not, by itself, entitle the holder thereof to vote at any General Meeting
nor shall it entitle such holder to a second or casting vote (without
derogating, however, from the rights of such Chairman to vote as a shareholder
or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).

23.  ADOPTION OF RESOLUTIONS AT GENERAL MEETINGS

     (a)  Unless otherwise specifically provided in these Articles or under any
applicable law, all resolutions submitted to the shareholders shall be deemed
adopted if approved by the holders of a simple majority of the voting power
represented at the meeting in person or by proxy or by written ballot, as shall
be permitted, and voting thereon.

     (b)  Every question submitted to a General Meeting shall be decided by a
count of votes.

     (c)  A declaration by the Chairman of the meeting that a resolution has
been carried unanimously, or carried by a particular majority, or lost, and an
entry to that effect in the minute book of the Company, shall be prima facie
evidence of the fact without proof of the number or proportion of the votes
recorded in favor of or against such resolution.

24.  POWER TO ADJOURN

     (a)  The Chairman of a General Meeting, in which the required quorum is
present, may resolve to adjourn the meeting ,for no more than thirty(30)days, to
such time and place as shall be determined but no business shall be transacted
at any adjourned meeting except business which might lawfully have been
transacted at the meeting as originally called.

     (b)  It shall not be necessary to give any notice of an adjournment under
Article 24(a), unless the meeting is adjourned for more than twenty-one (21)
days in which event notice thereof shall be given in the manner required for the
meeting as originally called.

25.  VOTING POWER

     Subject to any provision hereof conferring special rights as to voting, or
restricting the right to vote, every shareholder shall have one vote for each
share held by him of record, on every resolution.

26.  VOTING RIGHTS

     (a)  The shareholders entitled to vote at a General Meeting shall be the
shareholders listed in the Company's Register of Shareholders on the record
date, as specified in Article 15.

                                     - 10 -
<PAGE>

     (b)  A company or other corporate body being a shareholder of the Company
may, by resolution of its directors or any other managing body thereof,
authorize any person to be its representative at any meeting of the Company. Any
person so authorized shall be entitled to exercise on behalf of such shareholder
all the power which the latter could have exercised if it were an individual
shareholder. Upon the request of the Chairman of the meeting, written evidence
of such authorization (in form acceptable to the Chairman) shall be delivered to
him.

     (c)  Any shareholder entitled to vote may vote either personally or by
proxy (who need not be a shareholder of the Company), or, if the shareholder is
a company or other corporate body, by a representative authorized pursuant to
Article 26(b) or by a written ballot, as permitted by law and according to these
Articles.

     (d)  If two or more persons are registered as joint holders of any share,
the vote of the senior who tenders a vote, in person or by proxy or by written
ballot, as shall be permitted, shall be accepted to the exclusion of the vote(s)
of the other joint holder(s); and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Shareholders.

     (e)  No shareholders shall be entitled to vote at any General Meeting (or
be counted as a part of the quorum thereat), unless all calls and other sums
then payable by him in respect of his shares in the Company have been paid.

     (f)  The Board of Directors may determine, in its discretion, the matters
that may be voted upon a written ballot to the Company (without attendance in
person or by proxy or by written ballot, as shall be permitted, at a General
Meeting, in addition to the matters listed in Section 87(c ) of the Companies
law.

                                     PROXIES

27.  INSTRUMENT OF APPOINTMENT

     (a)  The instrument appointing a proxy shall be in writing and shall be in
any usual or common form or in such other form as may be approved by the Board
of Directors. It shall be duly signed by the appointor or, if such appointor is
a company or other corporate body, under its common seal or stamp or the hand of
its duly authorized agent(s) or attorney(s).

     (b)  The instrument appointing a proxy (and the power of attorney or other
authority, if any, under which such instrument has been signed) shall be
delivered to the Company (at its Registered Office, or at its principal place of
business or at the offices of its transfer agent or at such other place as the
Board of Directors may specify) not less than forty-eight (48) hours (or such
shorter period as may be determined by the Board of Directors) before the time
fixed for the meeting at which the person named in the instrument proposes to
vote.

28.  EFFECT OF DEATH OF APPOINTOR OR REVOCATION OF APPOINTMENT

     A vote cast pursuant to an instrument appointing a proxy shall be valid
notwithstanding the previous death of the appointing shareholder (or of his
attorney-in-fact, if any, who signed

                                     - 11 -
<PAGE>

such instrument), or the revocation of the appointment or the transfer of the
share in respect of which the vote is cast, provided no written notification of
such death, revocation or transfer shall have been received by the Company or by
the Chairman of the meeting before such vote is cast, and provided, further,
that the appointing shareholder, if present in person at said meeting, may
revoke the appointment by means of a writing, oral notification to the Chairman,
or otherwise.


                               BOARD OF DIRECTORS

29.  POWERS OF BOARD OF DIRECTORS

     (a)  The Board of Directors shall have all powers vested in it according to
the Companies Law and these Articles, shall have any and all authorities not
vested in any other organ of the Company according to the Companies Law and
these Articles, shall be authorized to determine the policy of the Company,
shall supervise the performance and actions of the General Manager, and, without
derogating form the above, shall have all the following powers:

          (i)      determine the Company's plans of action, the principles of
their financing and the order of priority among them;

          (ii)     examine the financial status of the Company, and set the
frame of credit that the Company shall be entitle to acquire;

          (iii)    determine the organizational structure of the Company and its
compensation policies;

          (iv)     may resolve to issue series of debentures;

          (v)      shall be responsible for the preparation and approval of the
financial statements of the Company, as set forth in Section 171 of the
Companies Law;

          (vi)     report to the Annual General Meeting of the status of the
Company's affairs and of their financial outcomes, as set forth in Section 173
of the Companies Law.

          (vii)    appoint the General Manager and may terminate such
appointment, in accordance with Section 250 of the Companies Law;

          (viii)   resolve in the matters on actions and transactions that
require its approval according to Sections 255 and 268-275 of the Companies Law
and of the provisions of these Articles;

          (ix)     issue shares and convertible securities up to the total
amount of the authorized share capital of the Company, in accordance with
Section 288 of the Companies Law;

          (x)      decide on a "distribution" as set forth in Sections 307-308
of the Companies Law;

                                     - 12 -
<PAGE>

          (xi)     express its opinion on a special tender offer, as set forth
in Section 329 of the Companies Law.

     (b)  The powers of the Board of Directors described in Articles
29(a)(i)-29(a)(xi) above shall not be delegated to the General Manager(s) of the
Company.

30.  EXERCISE OF POWERS OF DIRECTORS

     (a)  A meeting of the Board of Directors at which a quorum is present shall
be competent to exercise all the authorities, powers and discretion vested in or
exercisable by the Board of Directors.

     (b)  A resolution proposed at any meeting of the Board of Directors shall
be deemed adopted if approved by a simple majority of the Directors then in
office who are lawfully entitled to participate in the meeting and vote thereon
and present when such resolution is put to a vote and voting thereon.

     (c)  A resolution in writing signed by all of the Directors then in office
and lawfully entitled to vote thereon (as conclusively determined by the
Chairman of the Board of Directors) or to which all of such Directors have given
their consent (by letter, telegram, telex, facsimile, telecopier or their oral
consent by telephone (provided that a written summary thereof has been approved
and signed by the Chairman of the Board of Directors of the Company)) shall be
deemed to have been unanimously adopted by a meeting of the Board of Directors
duly convened and held.

31.  DELEGATION OF POWERS

     The Board of Directors may, subject to the provisions of the Companies Law,
delegate its powers to committees, each consisting of two or more persons (all
of whose members must be Directors), and it may from time to time revoke such
delegation or alter the composition of any such committee. Any such Committee
authorized to exercise the powers of the Board of Directors shall include at
least one (1) External Director. Any Committee so formed (in these Articles
referred to as a "Committee of the Board of Directors"), shall, in the exercise
of the powers so delegated, conform to any regulations imposed on it by the
Board of Directors. The meetings and proceedings of any such Committee of the
Board of Directors shall, mutatis mutandis, be governed by the provisions herein
contained for regulating the meetings of the Board of Directors, so far as not
superseded by any regulations adopted by the Board of Directors under this
Article. Unless otherwise expressly provided by the Board of Directors in
delegating powers to a Committee of the Board of Directors, such Committee shall
not be empowered to further delegate such powers.

32.  NUMBER OF DIRECTORS

     Until otherwise determined by resolution of the Company's shareholders, the
Board of Directors shall consist of not less than three (3) nor more than
thirteen (13) Directors, including two (2) External Directors.

                                     - 13 -
<PAGE>

33.  ELECTION AND REMOVAL OF DIRECTORS

     Directors shall be elected at the Annual General Meeting by the vote of the
holders of a simple majority of the voting power represented at such meeting in
person or by proxy or by written ballot, as shall be permitted, and voting on
the election of directors. The Directors so elected shall hold office until the
next Annual General Meeting. The holders of a simple majority of the voting
power represented at a General Meeting and voting thereon shall be entitled to
remove any Director(s) from office, to elect directors in place of the
Director(s) so removed or to fill any vacancy, however created, on the Board of
Directors.

34.  CONTINUING DIRECTORS IN THE EVENT OF VACANCIES

     (a)  Any vacancy in the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board, may be filled by a vote of a
majority of the Directors then in office, even if less than quorum. A Director
elected to fill a vacancy shall be elected to hold office until the next annual
General Meeting.

     (b)  If the position of one or more Directors is vacated, the continuing
Directors shall be entitled to act in every matter so long as their number is
not less than the statutory minimum number required at the time. If, at any
time, their number decreases below said statutory minimum number, they will not
be entitled to act except in an emergency, and they may fill vacant positions on
the Board of Directors pursuant to Article 34(a) herein or call a General
Meeting of the Company for the purpose of electing Directors to fill any
vacancies.

35.  VACATION OF OFFICE

     (a)  The office of a Director shall be vacated, ipso facto, upon the
occurrence of any of the following: (i) such Director's death, (ii) such
Director is convicted of a crime as described in Section 232 of the Companies
Law, (iii) such Director is removed by a court or law in accordance with Section
233 or 247 of the Companies Law, (iv) such Director becomes legally incompetent,
(v) if such Director is an individual, such Director is declared bankrupt, (vi)
if such Director is a corporate entity, upon its winding-up, liquidation,
whether voluntary or involuntary or (vii) upon a resolution of the Company's
shareholders, pursuant to Article 33(a) above.

     (b)  The office of a Director shall be vacated by his written resignation.
Such resignation shall become effective on the date fixed therein, or upon the
delivery thereof to the Company, whichever is later.

36.  REMUNERATION OF DIRECTORS

     Each Director shall be paid remuneration by the Company for his services as
Director as such remuneration shall have been approved pursuant to the
provisions of the Companies Law.

37.  NO ALTERNATE DIRECTORS

     A Director may not appoint an alternate for himself.

                                     - 14 -
<PAGE>

                      PROCEEDINGS OF THE BOARD OF DIRECTORS

38.  MEETINGS

     (a)  The Board of Directors may meet and adjourn its meetings according to
the Company's needs but at least once in every three (3) months, and otherwise
regulate such meetings and proceedings as the Directors think fit. Meetings of
the Board of Directors may be held telephonically or by any other means of
communication provided that each Director participating in such meeting can hear
and be heard by all other Directors participating in such meeting.

     (b)  Any Director may at any time convene a meeting of the Board of
Directors, but not less than seven (7) days' notice (oral or written) shall be
given of any meeting so convened. The failure to give notice to a Director in
the manner required hereby may be waived by such Director. Upon the unanimous
approval of the Directors, a meeting of the Board of Directors can be convened
without any prior notice. The notice of a meeting shall include the agenda of
the meeting.

39.  QUORUM

     A quorum at a meeting of the Board of Directors shall be constituted by the
presence, in person or by any other means of communication by which the
Directors may hear each other simultaneously, of a majority of the Directors
then in office who are lawfully entitled to participate in the meeting and vote
thereon (as conclusively determined by the Chairman of the Board of Directors).
No business shall be transacted at a meeting of the Board of Directors unless
the requisite quorum is present as aforesaid when the meeting proceeds to
business.

40.  CHAIRMAN OF THE BOARD OF DIRECTORS

     The Board of Directors shall from time to time elect one of its members to
be the Chairman of the Board of Directors, and it may from time to time remove
such Chairman from office and appoint another in its place. The Chairman of the
Board of Directors shall preside at every meeting of the Board of Directors, but
if there is no such Chairman, or if at any meeting he is not present within
fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to
take the chair, the Directors present shall choose one of their number to be the
chairman of such meeting.

     The General Manager of the Company shall not serve as the Chairman of the
Board of Directors, and the Chairman of the Board of Directors shall not be
granted authorities of the General Manager, unless such appointment, or grant,
as the case may be, is approved by the shareholders in a General Meeting in
accordance with Section 121(c) of the Companies Law. The office of Chairman
shall not entitle the holder to a second or casting vote .

41.  VALIDITY OF ACTS DESPITE DEFECTS

     Subject to the provisions of the Companies Law, all acts done bona fide at
any meeting of the Board of Directors, or of a Committee of the Board of
Directors, or by any person(s) acting as Director(s), shall, notwithstanding
that it may afterwards be discovered that there was some defect in the
appointment of the participants in such meetings or any of them or any person(s)
acting as aforesaid, or that they or any of them were disqualified, be as valid
as if there were no such defect or disqualification.

                                     - 15 -
<PAGE>

                                 GENERAL MANAGER

42.  GENERAL MANAGER

     (a)  The Board of Directors shall appoint from time to time one or more
persons as General Manager(s) of the Company.

     (b)  The General Manager shall be responsible for the day-to-day management
of the affairs of the Company within the framework of the policies determined by
the Board of Directors from time to time and subject to the discretion of the
Board of Directors.

     (c)  The General Manager shall have full managerial and operational
authority to carry out all the activities which the Company may carry on by law
and under these Articles and which have not been vested by law or by these
Articles in any other organ of the Company. The General Manager shall be subject
to the supervision of the Board of Directors.

     (d)  The General Manager may, subject to the provisions of the Companies
Law, from time to time, appoint a Secretary to the Company, as well as officers,
agents, employees and independent contractors, as the General Manager may think
fit, and may terminate the service of any such person. The General Manager may,
subject to the provisions of the Companies Law, determine the powers and duties,
as well as the salaries and emoluments, of all such persons.


                                     MINUTES

43.  MINUTES

     (a)  Minutes of each General Meeting and of each meeting of the Board of
Directors shall be recorded and duly entered in books provided for that purpose.
The minutes of each meeting of the Board of Directors shall, in all events, set
forth the names of the persons present at the meeting and all resolutions
adopted thereat.

     (b)  Any minutes as aforesaid, if purporting to be signed by the chairman
of the meeting or by the chairman of the next succeeding meeting, shall
constitute prima facie evidence of the matters recorded therein.

     (c)  Subject to the provisions of the Companies Law, each shareholder shall
have the right to inspect the minutes of the General Meetings.


                                    DIVIDENDS

44.  DECLARATION OF DIVIDENDS

                                     - 16 -
<PAGE>

     Subject to the Companies Law, the Board of Directors may from time to time
declare, and cause the Company to pay dividends out of the profits of the
Company. Subject to the Companies Law, the Board of Directors shall determine
the time for payment of such dividends and the record date for determining the
shareholders entitled thereto.

45.  AMOUNT PAYABLE BY WAY OF DIVIDENDS

     (a)  Subject to the rights of the holders of shares with special rights as
to dividends, if any, any dividend paid by the Company shall be allocated among
the shareholders entitled thereto in proportion to the nominal value of their
respective holdings of the shares in respect of which such dividend is being
paid.

     (b)  Shares which are fully paid up or which are credited as fully or
partly paid within any period which in respect thereof dividends are paid shall
entitle the holders thereof to a dividend in proportion to the amount paid up or
credited as paid up in respect of the nominal value of such shares and to the
date of payment thereof (pro rata temporis).

46.  INTEREST

     No dividend shall carry interest as against the Company.

47.  UNCLAIMED DIVIDENDS

     All unclaimed dividends payable in respect of a share may be invested or
otherwise made use of by the Board of Directors for the benefit of the Company
until claimed. The payment by the Directors of any unclaimed dividend into a
separate account shall not constitute the Company a trustee in respect thereof,
and any dividend unclaimed after a period of seven (7) years from the date of
declaration of such dividend unclaimed after a like period from the date the
same were payable, shall be forfeited and shall revert to the Company, PROVIDED,
HOWEVER, that the Board of Directors may, at its discretion, cause the Company
to pay any such dividend, or any part thereof, to a person who would have been
entitled thereto had the same not reverted to the Company.

                                     - 17 -
<PAGE>

                                    ACCOUNTS

48.  AUDITORS

     The outside auditor(s) of the Company shall be appointed by resolution of
the Company's shareholders at the General Meeting and shall serve until
its/their re-election, removal or replacement by subsequent resolution, provided
that each term of service shall not extend beyond the third Annual Meeting after
the Annual Meeting at which such auditor was appointed. The authorities, rights
and duties of the outside auditor(s) of the Company, shall be regulated by
applicable law. The Board of Directors shall have the power and authority to fix
the remuneration of the auditor(s).

                               RIGHTS OF SIGNATURE

49.  RIGHTS OF SIGNATURE

     The Board of Directors shall be entitled to authorize any person or persons
(who need not be Directors) to act and sign on behalf of the Company, and the
acts and signature of such person(s) on behalf of the Company shall bind the
Company insofar as such person(s) acted and signed within the scope of his or
their authority.


                                     NOTICES

50.  NOTICES

Without derogating from the provisions of Article 20:

     (a)  In the event the Company elects to send any written notice or other
document to any of its shareholders such notice may be served either personally
or by sending it by prepaid registered mail (airmail if sent to a place outside
Israel) addressed to such shareholder at his address as described in the
Register of Shareholders or such other address as he may have designated in
writing for the receipt of notices and other documents. In the event a
shareholder elects to send the Company any written notice or other document such
notice may be served by tendering the same in person to the Secretary or the
General Manager of the Company at the principal office of the Company or by
sending it by prepaid registered mail (airmail if posted outside Israel) to the
Company at its Registered Address. Any such notice or other document shall be
deemed to have been served forty-eight (48) hours after it has been posted
(seven (7) business days if sent internationally), or when actually received by
the addressee if sooner than two days or seven days, as the case may be, after
it has been posted, or when actually tendered in person, to such shareholder (or
to the Secretary or the General Manager), provided, however, that notice may be
sent by cablegram, telex, telecopier (facsimile) or other electronic means (to
an address provided to the Company by any shareholder) and confirmed by
registered mail as aforesaid, and such notice shall be deemed to have been given
twenty-four (24) hours after such cablegram, telex, telecopy or other electronic
communication has been sent (provided, that electronic confirmation of the
successful sending of such notice was received) or when actually received by
such shareholder (or by the Company), whichever is earlier. If a notice is, in
fact, received by the addressee, it shall be deemed to have been duly served,
when received,

                                     - 18 -
<PAGE>

notwithstanding that it was defectively addressed or failed, in some respect, to
comply with the provisions of this Article 50(a).

     (b)  All notices to be given to the shareholders shall, with respect to any
share to which persons are jointly entitled, be given to whichever of such
persons is named first in the Register of Shareholders, and any notice so given
shall be sufficient notice to the holders of such share.

     (c)  Any shareholder whose address is not described in the Register of
Shareholders, and who shall not have designated in writing an address for the
receipt of notices, shall not be entitled to receive any notice from the
Company.


                             INSURANCE AND INDEMNITY

51.  INDEMNITY AND INSURANCE


     (a)  INDEMNIFICATION

          (i)      Subject to the provisions of the Companies Law, including the
receipt of all approvals as required therein or under any applicable law, the
Company may indemnify an Office Holder with respect to the following liabilities
and expenses, provided that such liabilities or expenses were incurred by such
Office Holder in such Office Holder's capacity as an Office Holder of the
Company:

                   (1)      a monetary liability imposed on an Office Holder
pursuant to a judgment in favor of another person, including a judgment imposed
on such Office Holder in a settlement or in an arbitration decision that was
approved by a court of law; and

                   (2)      reasonable legal expenses, including attorney's
fees, which the Office Holder incurred or with which the Office Holder was
charged by a court of law, in a proceeding brought against the Office Holder, by
the Company, on its behalf or by another person, or in a criminal prosecution in
which the Office Holder was acquitted, or in a criminal prosecution in which the
Office Holder was convicted of an offense that does not require proof of
criminal intent.

          (ii)     The foregoing indemnification may be procured by the Company
(a) retroactively and (b) as a commitment in advance to indemnify an Office
Holder, provided that such commitment shall be limited to (i) such events that
in the opinion of the Board of Directors can be foreseen at the time the
undertaking to indemnify is provided, and (ii) to the amounts that the Board of
Directors deems reasonable under the circumstances and which shall in no event
exceed ,in the aggregate, twenty five percent (25%) of the Company's
Shareholder's Equity at the time of the indemnification .

     (b)  INSURANCE

                                     - 19 -
<PAGE>

          (i)      Subject to the provisions of the Companies Law, including the
receipt of all approvals as required therein or under any applicable law, the
Company may enter into an agreement to insure an Office Holder for any
responsibility or liability that may be imposed on such Office Holder in
connection with an act performed by such Office Holder in such Office Holder's
capacity as an Office Holder of the Company, with respect to each of the
following:

                   (1)      violation of the duty of care of the Office Holder
towards the Company or towards another person;

                   (2)      breach of the fiduciary duty towards the Company,
provided that the Office Holder acted in good faith and with reasonable grounds
to assume that the such action would not prejudice the benefit of the Company;
and

                   (3)      a financial obligation imposed on the Office Holder
for the benefit of another person.

          (ii)     Articles 51(b) and 51(c) shall not apply under any of the
following circumstances:

                   (1)      a breach of an Office Holder's fiduciary duty,
except as specified in Article 51(c)(i)(2);

                   (2)      a grossly negligent or intentional violation of an
Office Holder's duty of care;

                   (3)      an action intended to reap a personal gain
illegally; and

                   (4)      a fine or ransom levied on an Office Holder.

          (iii)    The Company may procure insurance for or indemnify any person
who is not an Office Holder, including without limitation, any employee, agent,
consultant or contractor, provided, however, that any such insurance or
indemnification is in accordance with the provisions of these Articles and the
Companies Law.

                                     - 20 -
<PAGE>

                                     MERGER

52.  MERGER

     A merger (as defined in the Companies Law) of the Company shall require the
approval of the holders of a majority of seventy five percent (75%) of the
voting power represented at the General Meeting in person or by proxy or by
written ballot, as shall be permitted, and voting thereon in accordance with the
provisions of the Companies Law.


                                   WINDING UP

53.  WINDING UP

     If the Company be wound up, then, subject to applicable law, after
satisfaction of the Company's liabilities to creditors, the Company's
liquidation proceeds shall be distributed to the shareholders of the Company in
proportion to the nominal value of their respective holdings of the shares in
respect of which such distribution is being made. A voluntary winding up of the
Company shall require the approval of the holders of a majority of at least
seventy five percent (75%) of the voting power represented at a General Meeting
in person or by proxy or by written ballot, as shall be permitted, and voting
thereon.


                           AMENDMENT OF THESE ARTICLES

54.  Any amendment of these Articles shall require the approval of the holders
of a simple majority of the voting power represented at the General Meeting in
person or by proxy or by written ballot, as shall be permitted, and voting
thereon.

                                     - 21 -

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>4
<FILENAME>tex4_3-29996.txt
<DESCRIPTION>EX-4.3
<TEXT>
                                                                     Exhibit 4.3

                               DATED 30 July 2002

                                  THALES SA (1)

                                     - and -

                               THE PURCHASERS (2)

                  --------------------------------------------

                           SALE AND PURCHASE AGREEMENT

                  --------------------------------------------

                                 EXECUTION COPY

<PAGE>

                                      INDEX

      CLAUSE

1     Definitions and Interpretation

2     Conditions

3     Business Properties

4     Sale and Purchase of Cliffstone Shares

5     Sale and Purchase of the Business

6     Liabilities to be Assumed

7     Purchase Price

8     VAT

9     Completion

10    Conduct of the Business prior to Completion

11    Indemnities

12    Release of guarantees

13    Completion Balance Sheet

14    Employment

15    Debts and Accounts Receivable

16    Inventory

17    Warranty work and Additional Services

18    Instem Manufacturing Agreement

19    Action after Completion

20    Insurance

21    Third Party Consents

22    Warranties and Limitations on Liability

<PAGE>

23    Restrictions on Thales Activities

24    Use of Corporate Names

25    Pensions

26    Confidentiality of Information

27    Corporate Governance, Registration Rights Agreement and Standstill
      Agreement

28    Notices

29    Announcements

30    Entire Agreement

31    Costs

32    Amendments and Waivers

33    Severability

34    Assignment

35    Continuing Effect

36    Counterparts

37    Governing Law

38    Contracts (Rights of Third Parties) Act 1999

39    Agent for Service

40    Gross Payments

41    Guarantee

SCHEDULES

1     The Companies

2     Apportionment

3     Properties

4     Warranties

5     Cliffstone Warranties


                                       2
<PAGE>

6     Pensions

7     Intellectual Property Rights

8     Guarantees

9     Accounting Principles

10    Overseas Completion Requirements

11    Corporate Governance, Registration Rights Agreement and Standstill
      Agreement

12    Transitional Services Agreement

13    Prism Earn-Out Consideration Table

14    IPR Agreements

15    US Business Transfer Agreement

16    French Business Transfer Agreement

17    German Business Transfer Agreement

18    Employees

19    Relevant Employees

20    Key Employees

21    2002 Sales Determination

22    Surplus Employees

ATTESTATIONS


                                       3
<PAGE>

                           SALE AND PURCHASE AGREEMENT

THIS AGREEMENT is made the 30th day of July, 2002

PARTIES:

(1)   THALES SA, a French societe anonyme having its registered office at 173,
      Boulevard Haussmann, Paris (75008) ("Thales");

(2)   NICE CTI SYSTEMS UK LIMITED (a company incorporated in England and Wales
      with registered number03403044) whose registered office is at 8 The
      Square, Stockley Park, Uxbridge, Middlesex UB11 1FW ("UK Purchaser");

(3)   NICE SYSTEMS SARL, a French societe a responsabilite limitee in the course
      of being set up, whose registered office will be located at 64 avenue
      Kleber, 75116 Paris, France represented for the purpose of this Agreement
      by its sole shareholder Nice CTI Systems UK Ltd., itself represented by
      Haim Shani duly empowered for the purpose hereof ("French Purchaser");

(4)   NICE SYSTEMS GMBH (a German company) whose registered office is at
      Lyonerstrasse 44-48, Frankfurt 60528, Germany ("German Purchaser");

(5)   NICE SYSTEMS INC. (a company incorporated under the laws of the State of
      Delaware , USA), whose principal place of business is at 301 Route 17
      North, Rutherford, New Jersey 07070 (the "US Purchaser");


                                       4
<PAGE>

(6)   NICE SYSTEMS LTD. an Israeli company having its registered office at 8
      Hapnina Street, Raanana, 43107 Israel ("Nice")

      (Nice, the UK Purchaser, the French Purchaser, the German Purchaser and
      the US Purchaser being referred to in this Agreement together as the
      "Purchasers").


                                       5
<PAGE>

BACKGROUND:

A     Thales, through its wholly owned subsidiaries identified in this Agreement
      as the Companies, carries on the Business (as defined in this Agreement)
      and is the beneficial owner or is otherwise able to procure the sale of
      the Business as a going concern and the sale of the Assets (as defined in
      this Agreement).

B     Thales has agreed to sell (or procure the sale of), and Nice has agreed to
      purchase the Business as a going concern (as defined in this Agreement)
      and the Assets (as defined in this Agreement), either directly or through
      one or more of its subsidiaries, upon the terms of this Agreement.


                                       6
<PAGE>

TERMS AGREED:

1     DEFINITIONS AND INTERPRETATION

1.1   In this Agreement and the Schedules to it unless the context otherwise
      requires the following words and expressions shall have the following
      meanings:

      "Accounting Date" means 31 December 2001;

      "Accounting Principles" means the Thales principles and accounting
      policies more particularly set out in Schedule 9 and practices in
      accordance with which the Accounts were prepared, consistently applied;

      "Accounts" means the audited accounts of each of the Companies, comprising
      the balance sheet and the profit and loss account as at the Accounting
      Date together with the notes, reports and statements included in or
      annexed to them;

      "Accounts Combination Statement" means the combination of the Accounts in
      the agreed terms;

      "Accounts Receivable" means all book debts, notes receivable and other
      rights to payment at the Completion Date arising from the operation of the
      Business before the Completion Date (including the right to receive
      payment for goods despatched or delivered and services rendered before the
      Completion Date but not invoiced before such date) but excluding any such
      debts or rights forming part of the Excluded Assets and "Accounts
      Receivable" shall be construed accordingly;


                                       7
<PAGE>

      "Additional Services" means the additional services defined in Clause
      17.2;

      "Affiliates" means in respect to any person, any other person directly or
      indirectly controlling, controlled by, or under common control with, such
      person;

      "Assets" means all of the assets and rights used in or relating to the
      Business as listed in Clause 5.1 below but excluding the Excluded Assets;

      "Assigned IPR" means those Intellectual Property Rights to be assigned
      under the Thales IPR Assignment;

      "Assumed Cliffstone Obligations" means the liabilities or obligations to
      Cliffstone as defined at sub-paragraph (d) of the definition of "Assumed
      Liabilities";

      "Assumed Liabilities" means:

      (a)   trade creditors of the Business at the Completion Date to the extent
            reflected in the Completion Balance Sheet;

      (b)   subject to Clause 17.1, performance obligations which remain to be
            performed under the Contracts excluding any licences of third party
            Intellectual Property Rights where the formal consent of the
            licensor is required and has not been obtained to enable


                                       8
<PAGE>

            the relevant Purchaser to take an assignment of such obligations
            unless and until such consent has been obtained;

      (c)   all of the debts, obligations and other liabilities and all claims
            of and against the Companies arising before or after Completion
            which specifically relate to the Business but, in each case, only to
            the extent reflected in the Completion Balance Sheet; and

      (d)   the liabilities or obligations to Cliffstone which will be assumed
            by or attach to the UK Purchaser and the US Purchaser under the
            terms of the Cliffstone Documents following their acquisition of the
            Cliffstone Shares and the Cliffstone Note (respectively) pursuant to
            this Agreement and any other obligations assumed by Nice under
            United States company law pursuant to their holding of shares in a
            US private limited company, where, in each case such liability
            relates to the period after Completion and is not caused by any act,
            error, or omission by Thales during Thales' period of ownership of
            the Cliffstone Shares (the "Assumed Cliffstone Obligations");

      "Auditors" means, PwC, London;

      "Business" means the business of the design, development, production,
      marketing and supply of various secure voice recording, surveillance and
      replay systems and products and application software for business
      performance management solutions in contact centres, public safety and
      wholesale trading platforms and the provision of ancillary services
      currently carried on by the Companies;


                                       9
<PAGE>

      "Business Day " means a day (other than a Saturday or Sunday) on which
      banks are open for normal banking business in Paris, London, New York and
      Tel Aviv;

      "Business Information" means all information used exclusively in the
      Business including but not limited to all know-how, trade secrets,
      confidential information and other information (whether or not
      confidential and in whatever form held) owned and in the possession or
      under the control of the Companies including, without limitation, all
      formulas, designs, specifications, drawings, data, manuals and
      instructions and all customer lists, sales information and records,
      business plans and forecasts, accounting and tax records, orders,
      correspondence and enquiries and all technical or other expertise;

      "Business IPR" means the Intellectual Property Rights owned by the
      Companies and any Intellectual Property Rights owned by any other member
      of the Thales Group which is used exclusively in connection with the
      Business and/or including, but not limited to, the Assigned IPR which
      includes but is not limited to the Intellectual Property Rights set out at
      Schedule 7 but excluding the Excluded Trade Marks;

      "Business Properties" means the properties detailed in Part 1 of Schedule
      3;

      "Business Transfer Agreements" has the meaning set out in Clause 5.5;

      "Carved-Out Accounts" means the combined audited accounts of each of the
      Companies in respect of the Business, prepared according to US GAAP and
      carve-out principles for the periods ended 31 December 2000 and the
      Accounting Date or prepared according to carve-out principles but not US
      GAAP for the periods ended 31 December 1999, 31 December 2000 and the


                                       10
<PAGE>

      Accounting Date, required to comply with SEC requirements for a 20F or F3
      filing;

      "Cliffstone" means Cliffstone Corporation, a company incorporated under
      the laws of the state of Georgia whose principal place of business is 645
      Molly Lane, Suite 150, Woodstock, Georgia 30189;

      "Cliffstone Documents" means each of:

      (a)   the Cliffstone Note;

      (b)   the Call Center Technology, Inc Investor Rights Agreement dated
            August 21, 2000 between Call Center Technology, Inc, The Racal
            Corporation, the Common Shareholders, the Series A Shareholders and
            the New Shareholders (and Amendment 2 thereto dated 10 September
            2001;

      (c)   the Stock Purchase Agreement between CCTI., Stephen M. Beckett II,
            Henry F. Yoder Jr., Cordova Technology Partners L.P. and the Racal
            Corporation dated 21 August 2000;

      (d)   the Credit Agreement between Cliffstone Corporation and Thales TRC,
            Inc. dated 10 September 2001; and

      (e)   the Security Agreement between Cliffstone Corporation and Thales
            TRC, Inc. dated 10 September 2001;

      "Cliffstone Note" means the US Dollar One Million and Five Hundred
      Thousand secured convertible promissory note entered between Thales TRC,
      Inc. and Cliffstone on September 10, 2001;

      "Cliffstone Shares" means the 3,356,335 shares of series C Convertible
      Preferred Stock par value $1 per share in Cliffstone currently held by
      Thales


                                       11
<PAGE>

      TRC, Inc. to be transferred at Completion to Nice (or as it shall
      otherwise so direct) pursuant to the relevant transfer form;

      "Companies" means TCSA, TCSL, TCS GmbH and TCS Inc, brief details of each
      of which are set out in Schedule 1;

      "Companies Act" means the relevant legislation governing companies in each
      respective jurisdiction where the Companies are incorporated (being
      equivalent to the Companies Act 1985 in UK) and with respect to TCS, Inc.
      and Cliffstone respectively, also means the relevant legislation governing
      companies in their state of incorporation;

      "Company" means each of the Companies severally;

      "Completion" means completion of the transactions to be effected pursuant
      to this Agreement in accordance with Clause 9;

      "Completion Balance Sheet" means a consolidated balance sheet of the
      Business as at the Completion Date reflecting the Assets and Assumed
      Liabilities acquired or assumed pursuant to this Agreement prepared
      pursuant to and in accordance with Clause 13 and the Accounting
      Principles;

      "Completion Date" means the date on which Completion occurs;


                                       12
<PAGE>

      "Completion Net Asset Value" means the Net Asset Value as shown in the
      Completion Balance Sheet calculated in Dollars applying the Conversion
      Rate;

      "Conditions" means the conditions precedent to Completion specified at
      Clause 2 and "Condition" shall mean any of them;

      "Contracts" means

      (a)   the Leases;

      (b)   all contracts, engagements or orders entered into on or prior to the
            Completion Date by or on behalf of any of the Companies with
            customers for the sale of goods or the supply of services by any of
            the Companies in connection with the Business which at the
            Completion Date remain to be performed in whole or in part including
            any outstanding obligations owed to any member of the TCS Group in
            relation to the Business in respect of Inter-company Trading
            Indebtedness;

      (c)   all agreements entered into on or prior to the Completion Date by
            any member of the Thales Group in connection with the Business with
            sales representatives, sales agents or distributors which are extant
            at the Completion Date;


                                       13
<PAGE>

      (d)   all licences granted by any of the Companies in relation to the
            Business IPR;

      (e)   all licences granted in favour of any member of the Thales Group in
            relation to Intellectual Property Rights used exclusively in
            connection with the Business, including (but not limited to) those
            contained in the Disclosure Letter, except those which were intended
            to also be used outside of the Business but which, as a matter of
            fact, were only used in connection with the Business as at
            Completion, which licences shall be deemed to be "Shared Assets";
            and

      (f)   all other contracts entered into in the course of carrying on the
            Business to which any member of the Thales Group is a party and
            which have not been fully performed on the Completion Date and which
            relate to the Business.

            Notwithstanding the above, "Contracts" shall not include contracts
            or leases in respect of Business Properties, contracts with
            Employees, US Embargo Country Contracts, the contract with Coppice
            Developments Limited and contracts relating to the Excluded
            Liabilities;

      "Conversion Rate" means the mid-market spot exchange rate between the two
      relevant currencies on the relevant date as published in the Financial
      Times (London edition);

      "Cross Patents Licence Agreements" means the patent licence granted by
      Thales in respect of all group patents including the patent application
      for "Voice Activity Monitor" owned by TCSL (UK Application number: UK
      9916430.3; application date 13 July 1999, publication number GB 2352948;

                                       14
<PAGE>

      publication date 7 February 2001; inventor Neil Martin Crick) to Alcatel
      and Thomson Multimedia;

      "Cumulative Orders" means the total cumulative value (calculated in Euro
      at the Conversion Rate on the 30 June 2002) of the recorded orders of the
      Companies received in respect of the Business in accordance with the
      provisions of Clause 7.7.6 during the period 1 January to 30 June 2002;

      "Disclosure Documents" means those documents disclosed to the Purchaser's
      Solicitors and which are scheduled and attached to the Disclosure Letter;

      "Disclosure Letter" means the letter of even date with this Agreement
      written by and on behalf of Thales to the Purchasers;

      "Dollar" or "USD" or "$" means dollar, the lawful currency of the United
      States of America;

      "Embargo Contracts" means (a) the purchase order placed by Rashed Al
      Makhawi for the supply of "Wordnet" recorders for Libya pursuant to a
      distribution agreement between Rashed Al Makhawi and TCSL (copies of the
      purchase order and the distribution agreement being attached to the
      Disclosure Letter); and (b) the purchase order placed by the Islamic
      Republic of Iran Civil Aviation Authority dated February 2002 for the
      supply of spares (a copy of which is attached to the Disclosure Letter)
      (the "Iran Contract");

      "Employees" means those employees employed by the Thales Group in the
      Business as at Completion who are to transfer to the Purchasers and who
      are listed at Schedule 18 as amended at Completion to reflect changes in
      the period between signing and Completion provided that such changes


                                       15
<PAGE>

      have occurred in compliance with Clause 10 and the total number of
      Employees in each jurisdiction at Completion does not exceed the number of
      Employees in each jurisdiction at the date of this Agreement unless
      otherwise agreed in writing by Nice and Thales;

      "Employment Liabilities" has the meaning set out in Clause 14.1.2;

      "Encumbrances" means all pledges, charges, liens, mortgages, security
      interests, pre-emption rights, options and any other similar encumbrances
      or third party rights or claims of any similar kind (other than liens
      arising or incurred in the ordinary course of business and securing
      obligations not material in amount and provisions constituting reservation
      and retention of title clauses entered into in the ordinary course of
      business in favour of suppliers);

      "Environment" has the meaning ascribed by Section 1 (2) of the Environment
      Protection Act 1990 and equivalent law in all other countries where the
      Business has been and/or is conducted;

      "Environmental Laws" means all laws, regulations, directives and other
      measures imposed by any relevant body to which the Business has been
      subject insofar as they relate to the pollution or protection of the
      Environment;

      "Environmental Matters" means:-

      (a)   pollution or contamination;


                                       16
<PAGE>

      (b)   the release, spillage, deposit, escape, discharge, leak, emission or
            presence of Hazardous Materials or Waste;

      (c)   exposure of any person to Hazardous Materials or Waste;

      (d)   the creation of noise, vibration, radiation or common law or
            statutory nuisance or other adverse impact on the Environment;

      (e)   worker health and safety; and

      (f)   other matters relating to the protection, condition, maintenance or
            replacement of the Environment or any part of it arising out of the
            manufacturing, processing, treatment, keeping, handling, labelling,
            use (including as a building material), possession, supply receipt,
            sale, purchase, import, export or transportation or presence of
            Hazardous Materials or Waste;

      "European Transfer Legislation" has the meaning set out in Clause
      14.2.1(a);

      "Excluded Assets " means:

      (a)   Inter-company Debts; and

      (b)   cash in hand or at a bank not included in the Completion Balance
            Sheet;

      (c)   any US Embargo Country Contracts; and


                                       17
<PAGE>

      (d)   the Excluded Trade Marks;

      "Excluded Employees" means any persons not named at Schedule 18 as
      Employees;

      "Excluded Liabilities" means:

      (a)   Inter-company Debts and External Debt outstanding at Completion;

      (b)   Inter-company Trading Indebtedness owed by any member of the TCS
            Group to any member of the Thales Group other than the Companies;

      (c)   any liability to Taxation;

      (d)   any liability relating to US Embargo Country Contracts;

      (e)   any liability arising from or in connection with Cliffstone or
            obligations to Cliffstone, other than the Assumed Cliffstone
            Obligations;

      (f)   any liability in relation to the Excluded Employees; and

      (g)   any liability in relation to the contract with Coppice Developments
            Limited; and


                                       18
<PAGE>

      (h)   all of the debts, obligations and other liabilities and all claims
            of and against the Companies arising before or after Completion
            which are not Assumed Liabilities;

      "Excluded Trade Marks" means the trade marks, service marks, brand names,
      certification marks, trade dress, business names, and other indications of
      origin and any Internet protocol addresses and networks, including domain
      names, e-mail addresses and world wide web (www) and http addresses,
      network names, network addresses and services which subsist of or include
      "Thales", "Thales Contact Solutions", "Racal", "Thomson", or any
      confusingly similar word or any Thales, Racal or Thomson specific logos;

      "External Debt" means the indebtedness of the Companies (in relation to
      the Business) to banks or other providers of loan finance facilities but
      excluding:

      (a)   Inter-company Debts;

      (b)   Inter-company Trading Indebtedness; and

      (c)   all amounts in respect of the Leases;

      "Fixtures and Fittings" means the fixtures (other than the Machinery and
      Equipment and any landlords' fixtures and fittings at the Business
      Properties) belonging to the Companies or any other member of the Thales
      Group and used exclusively in connection with the Business;


                                       19
<PAGE>

      "French Business" means that part of the Business operated as a going
      concern by TCSA and all the Assets used in that part of the Business by
      TCSA other than the Assigned IPR;

      "GAAP" means generally accepted accounting principles in the relevant
      country;

      "German Business" means that part of the Business operated as a going
      concern by TCS GmbH and all the Assets used in that part of the Business
      by TCS GmbH other than the Assigned IPR;

      "Goodwill" means the goodwill, custom and connections of the Companies in
      connection with the Business including the exclusive right for Nice and
      the Purchasers to represent themselves as carrying on the Business in
      succession to the Companies but, for the avoidance of doubt, shall not
      include any right to the use of the Excluded Trade Marks save as
      specifically provided for under Clause 24 of this Agreement;

      "Governmental Authority" means any United Kingdom, France, United States
      of America, Germany, Israel, or other federal, state, provincial, or local
      governmental, regulatory, or administrative authority, agency or
      commission or any court, tribunal, or judicial or arbitral body and any
      body relating to any of the foregoing or to any jurisdiction in which the
      Business has operations;

      "Guarantees" means those guarantees or obligations expressly relating to
      the Business and/or Assets and/or Assumed Liabilities entered into by
      Thales or any member of the Thales Group and now subsisting and specified
      in Schedule 8;


                                       20
<PAGE>

      "Hazardous Materials" means anything which alone or in connection with
      other things is capable of causing harm to man or to the Environment or
      any other organism supported by the Environment such as to constitute a
      breach of Environmental Laws;

      "Hedge End Landlord" has the meaning set out in paragraph 2 of part 2 of
      Schedule 3;

      "Hedge End Licence" means the license granted pursuant to paragraph 10 of
      part 2 of Schedule 3;

      "Hedge End Property" means the office premises at Hedge End, Eastleigh,
      Hampshire demised by and more particularly described in a lease dated 9
      July 1998 made between Whitbread plc, Archer Communications Systems
      Limited, and Racal Electronics plc and which is also for the purposes of
      this Agreement one of the Business Properties;

      "Hedge End Sublease" means a sublease in the agreed terms to be entered
      into between Thales Properties Limited and the UK Purchaser relating to
      the Hedge End Property;

      "ICTA 1988" means the Income and Corporation Taxes Act 1988;

      "Independent Accountants" means either (a) an independent internationally
      reputable firm of chartered accountants agreed between


                                       21
<PAGE>

      Thales and Nice or (b) in default of agreement as to the identity of the
      independent internationally reputable firm of chartered accountants within
      5 days of either party notifying the other of its wish to appoint an
      independent firm, a specific member of an independent internationally
      reputable firm of chartered accountants to be nominated on the application
      of either party by the President for the time being of the Institute of
      Chartered Accountants in England and Wales;

      "Information Technology" means computer and telecommunication hardware,
      software, networks and/or other information technology and any aspect or
      asset of a business which relies on computer hardware, software, networks
      and other information technology (embedded or otherwise);

      "Instem Contracts" means each of the manufacturing agreement between TCSL
      and Instem Technologies Limited dated 5 November 2001, the agreement for a
      revolving credit facility between TCSL and Instem Technologies Limited
      dated 5 November 2001, the equitable charge granted by Instem Technologies
      Limited to TCSL dated 5 November 2001 and the deed of priority between
      TCSL and the Governor and Company of the Bank of Scotland dated 5 November
      2001;

      "Initial Purchase Price" means the price, exclusive of VAT, to be paid by
      the Purchasers in consideration for the Cliffstone Shares, Cliffstone
      Note, Business and Assets in accordance with this Agreement calculated in
      accordance with Clause 7.2 but excluding any Sales Earn Out Amount and any
      Earn Out Consideration payable in accordance with Clauses 7.4 and 7.7
      respectively;

      "Intellectual Property Rights" means all intellectual property in any
      jurisdiction, whether registered, pending applications or unregistered,
      including without limitation: (a) all trade marks, service marks, brand
      names,


                                       22
<PAGE>

      certification marks, trade dress, business names and other indications of
      origin; (b) Patents; (c) trade secrets, know-how and other confidential or
      non-public business information, including ideas, manufacturing and
      production processes and techniques, research and development information,
      drawings, specifications, designs, source codes plans, proposals and
      technical data, business and marketing plans, market surveys, market
      know-how and customer lists and information; (d) writings and other
      copyright works, including computer programs, source code, object code and
      documentation (whether or not released), design right, architecture,
      database rights, and all copyrights and any non-registered copyrights to
      any of the foregoing; (e) integrated circuit topographies and mask works;
      (f) Internet protocol addresses and networks, including domain names,
      e-mail addresses, world wide web (www) and http addresses, network names,
      network addresses and services; (g) privacy and publicity rights; and (h)
      all other intellectual property rights of a similar nature or having
      equivalent or similar effect to these which may subsist anywhere in the
      world;

      "Inter-company Debts" means all amounts owing on interest bearing or
      non-interest bearing loan or current account to or by any of the
      Companies, from or to any member of the Thales Group as at Completion,
      other than Inter-company Trading Indebtedness;

      "Inter-company Trading Indebtedness" means the trading debts in the
      ordinary course of business owing to or by any of the Companies, (in
      relation to the Business) by or to any member of the Thales Group
      including in respect of goods and services supplied, and for this purpose
      trading debts arising in the ordinary course of business shall include
      charges in respect of publicity, administration and other services
      provided by members of the Thales Group;

      "Inventory" means all stocks of raw materials, supplies, work in progress,
      parts and components and finished goods and other stock-in-trade and


                                       23
<PAGE>

      packaging held, used or owned by the Companies at the Completion Date
      exclusively for the purposes of or exclusively in connection with the
      Business, including items which although subject to reservation of title
      by the relevant sellers are under the direct or indirect control of the
      Companies including but not limited to inventory of the Business located
      at Instem or other third party locations;

      "IPR Assignment" means the agreement in the form attached at Schedule 14
      to be entered into between Thales Electronics, Thales and Nice relating to
      the assignment of the Assigned IPR;

      "IPR Licence" means the licence to be entered into between Thales
      Electronics and TCSL granting the right for TCSL to use the Assigned IPR
      in the form attached at Schedule 14;

      "IPR Licence Novation Deed" means the deed in the form attached at
      Schedule 14 to be entered into between TCSL, Thales Electronics and the UK
      Purchaser relating to the novation of the IPR Licence;

      "Key Employees" means those Employees listed at Schedule 20;

      "(pound)" or "pounds" means pounds sterling, the lawful currency of the
      United Kingdom;


                                       24
<PAGE>

      "Landlord's Consent" has the meaning set out in paragraph 2 of part 2 of
      Schedule 3;

      "Leases" means all those contracts, engagements or orders entered into on
      or prior to the Completion Date by or on behalf of the Companies in
      relation to the leasing, lease purchase or hire of goods or equipment for
      use exclusively in the Business which on the Completion Date remain to be
      performed in whole or in part;

      "Machinery and Equipment" means all the plant, machinery, equipment,
      Company owned vehicles, office, warehouse and factory equipment, furniture
      and furnishings, together with all spare parts, accessories and consumable
      supplies therefor and other goods used by the Companies exclusively in the
      Business at the Completion Date;

      "Management Accounts" the management accounts of the TCS Group (excluding
      TCSA) for the five month period ending 31 May 2002;

      "Material IPR" means all the Intellectual Property Rights used in
      connection with the Business relating to the following products:

      (a)   Renaissance;

      (b)   Wordnet (versions 1, 2 and 3);

      (c)   Tienna;

      (d)   Mirra; and

      (e)   Agent Quality Monitoring (and any applications associated therewith
            which are owned by the Companies);

      "NAV Target" means $29,982,000 being the combined net asset value of the
      Business as at 31 December 2001 calculated in accordance with the


                                       25
<PAGE>

      Accounting Principles as extracted from the Accounts Combination
      Statement.

      "NAV Statement" means the statement agreed between Thales and Nice
      pursuant to Clause 13 or, in the event of the operation of Clause 13.4,
      the determination of the Independent Accountants of the amount which in
      their opinion is the Net Asset Value;

      "Net Asset Value" means the aggregate amount, as at the close of business
      on the Completion Date, of the consolidated fixed and current assets of
      the Business (excluding the Goodwill, the Business IPR and any other
      intangible assets) less the aggregate amount, as at the close of business
      on the Completion Date, of the consolidated liabilities of the Business
      calculated in accordance with the Accounting Principles in Dollars
      applying the Conversion Rate;

      "Nice's Accountants" means Ernst & Young, Israel;

      "Nice Shares" has the meaning given in Clause 7.1;

      "Non-UK Business" means that part of the Business carried on outside the
      United Kingdom;

      "Non-UK Employees" means those employees employed in the Business outside
      the United Kingdom as listed in Part 2 of the Schedule 18 as amended at
      Completion to reflect changes in the period between signing and Completion
      provided that such changes have occurred in compliance with Clause 10 and
      the total number of Non-UK Employees in each non-UK jurisdiction at
      Completion does not exceed the number of Non-UK


                                       26
<PAGE>

      Employees in each non-UK jurisdiction on the date of this Agreement unless
      otherwise agreed in writing by Nice and Thales;

      "Patents" means any and all patents, patent applications (including
      letters patent, industrial designs, and inventor's certificates), design
      registrations, invention disclosures, and applications to register
      industrial designs, and any and all rights to any of the foregoing
      anywhere in the world, including any provisionals, substitutions,
      extensions, supplementary protection certificates, re-examinations,
      reissues, renewals, divisions, continuations in part (or in whole),
      continued prosecution applications, requests for continued examination,
      and other similar filings or notices provided for under the laws of any
      country;

      "PAYE" means any payment of or on account of any income assessable to
      income tax under Schedule E as required under Section 203 of ICTA 1988 and
      any regulations made under it or its equivalent in any relevant
      jurisdiction;

      "Prism Product" means the Tactical Application Integration Suite product
      known as "Prism" as at the date of Completion (version 2.7.27) owned by
      Cliffstone;

      "Purchasers" means the persons defined as such in the parties clause, and
      "Purchaser" shall mean any of them;

      "Purchasers' Group" means the Purchasers and any holding company of the
      Purchasers and any subsidiaries of such holding company, holding and
      subsidiary having the meanings given in the Companies Act 1985 of the
      United Kingdom;


                                       27
<PAGE>

      "Purchasers' Solicitors" means SJ Berwin, London;

      "Records" means all books and records containing or relating exclusively
      to Business Information or on which any Business Information is recorded
      (including, without limitation, all documents and other material (whether
      in hard copy or in any forms of computer or machine readable material));

      "Registration Rights Agreement" means the registration rights agreement
      between Nice and Thales granting Thales certain rights with respect to the
      registration under the United States Securities Act of 1933 as amended
      (the "Securities Act") of the Nice Shares issued to Thales as
      consideration pursuant to this Agreement set out at Schedule 11;

      "Reseller Agreement" means the Reseller Agreement between TCSL and
      Cliffstone dated 5 December 2000 (as amended) relating to the Prism
      Product;

      "Restricted Customer" means a person who was a customer of the Business at
      any time during the two years prior to the Completion Date;

      "Restricted Supplier" means a person who was a supplier of the Business at
      any time during the two years prior to the Completion Date;

      "Relevant Employees" means those employees listed at Schedule 19;

      "Service Documents" means a claim form, application notice, order,
      judgment or other document relating to any proceedings;


                                       28
<PAGE>

      "Shared Assets" has the meaning set out in clause 5.2;

      "Surplus Employees" means those Employees of TCSA and TCS GmbH listed at
      Schedule 22;

      "Sales Earn Out Amount" has the meaning set out in Clause 7.4 and
      calculated in accordance with Schedule 21;

      "2002 Sales" means the aggregate of:

      (a)   the net sales revenues of the Companies attributable to sales of TCS
            Products for the period from 1 January 2002 and ending on the
            Completion Date as set out in the management accounts of the
            Companies and recorded in the books of the Companies as revenue for
            the period concerned, with such adjustments as are necessary to
            comply with US GAAP including, for the avoidance of doubt, the
            inclusion of net sales revenues not recognised in the Carved Out
            Accounts prepared under US GAAP for the period ending on the
            Accounting Date but properly recognised as net sales revenues in the
            period from 1 January 2002 and ending on the Completion Date under
            US GAAP; and

      (b)   the net sales revenues of the Purchasers' Group attributable to
            sales of TCS Products for the period from the Completion Date and
            ending on 31 December 2002 by reference to the published financial
            statements of Nice for the financial year ending on 31 December
            2002;

      "2002 Sales Statement" means the statement agreed between Thales and Nice
      pursuant to Schedule 21, or in the event of the operation of paragraph 2.5
      of Schedule 21, the determination of the Independent Accountants of the
      amount which is in their opinion the 2002 Sales;


                                       29
<PAGE>

      "Tax" or "Taxation" means any form of tax, duty, charge, fee, levy,
      deficiency impost, withhholding or other assessment of whatever kind or
      nature and whether created or imposed including, without limitation, any
      income tax (including income tax or amounts equivalent to income tax
      required to be deducted withheld from or accounted for in respect of any
      payment) net income, gross income, profits, gross receipts, advance
      corporation tax, inheritance tax, value added tax, escheat property,
      rates, customs and excise duties, real or personal property, sales, ad
      valorem, withholding, national insurance and social security, retirement,
      excise, employment, unemployment, minimum, estimated, severance, stamp
      duty, stamp duty reserve tax, property, occupation, environmental,
      windfall profits, use, service, net worth, payroll, franchise, license,
      capital gains tax, customs, capital transfer tax, capital duty, recording
      and other tax, duty, charge, fee, levy, deficiency, impost, withholding or
      other assessment or charge of any kind whatsoever, wherever created or
      imposed, payable to or imposed by any Tax Authority, including any
      liability therefore as a transferee or as a result of any tax sharing or
      similar agreement, together with any interest, charges, penalties, fines
      or additions to tax relating thereto;

      "Tax Authority" means any branch, office, department, agency,
      instrumentality, court, tribunal, officer, employee, designee,
      representative, or other person that is acting for, on behalf or as a part
      of any foreign or domestic government (or any political subdivision
      thereof) that is engaged in or has any power, duty, responsibility or
      obligation relating to the legislation, promulgation, interpretation,
      enforcement, regulation, monitoring, supervision or collection of or any
      other activity relating to any Tax;

      "TCSA" means Thales Contact Solutions SA a French societe anonyme whose
      registered office is at 18 avenue Dutartre, 78150 Le Chesnay, France;


                                       30
<PAGE>

      "TCS GmbH" means Thales Contact Solutions GmbH a company incorporated in
      Germany whose registered office is at Technologie Park Bergisch Gladbach,
      Friedrich-Ebert Strasse, D-51429, Bergich Gladbach, Germany;

      "TCSL" means Thales Contact Solutions Limited (a company incorporated in
      England and Wales with the registered number 560700 whose registered
      office is at Western Road, Bracknell, Berkshire RG12 1RG;

      "TCS Group" means the Companies and the Business and Assets (as the
      context may require);

      "TCS Inc" means Thales Contact Solutions Inc, a company incorporated under
      the laws of the State of Delaware , USA, whose principal place of business
      is at 480 Spring Park Place, Suite 1000, Herndon VA20170, USA;

      "TCS Products" means all of the various secure voice recording,
      surveillance and replay systems and products and application software for
      business management solutions in contact centres, public safety and
      wholesale trading platforms (including in particular the products listed
      within the definition of Material IPR) and all other products and services
      sold or supplied in the course of the Business;

      "Thales IPR Assignment" means the agreement in the form attached at
      Schedule 14 to be entered into between TCSL and Thales Electronics;

      "Thales Electronics" means Thales Electronics Plc (a company incorporated
      in England and Wales with the registered number 497098) whose registered
      office is at Western Road, Bracknell, Berkshire RG12 1RG;


                                       31
<PAGE>

      "Thales Group" means Thales and each of its subsidiaries (including the
      Companies), any holding company of Thales and all other subsidiaries of
      such holding company from time to time;

      "Thales Properties Limited" means Thales Properties Limited (a company
      incorporated in England and Wales with registered number 1153834 whose
      registered office is at Western Road, Bracknell, Berkshire RG12 1RG;

      "Thales TRC, Inc" means Thales TRC Inc a company incorporated under the
      laws of the State of Florida, USA whose principal place of business is at
      North Harrison Parkway, Building A, Suite 100, Sunrise, Florida
      33323-2899;

      "Thales' Scheme" as defined in Schedule 6;

      "Third Party Licensed IPR" means Intellectual Property Rights which are
      licensed under Contracts as defined in part (e) of the definition of
      "Contracts" other than under the Wordnet 3 Licence and the Reseller
      Agreement;

      "Transfer Regulations" means the Transfer of Undertakings (Protection of
      Employment Regulations 1981, as amended;

      "Transitional Services Agreement" means the agreement in the form attached
      as Schedule 12 to be entered into between Thales, certain members of the
      Thales Group and the Purchasers relating to the provision of specified
      services for an interim period following Completion;

      "UK Business" means that part of the Business operated as a going concern
      by TCSL and all the Assets used in that part of the Business by TCSL other
      than the Assigned IPR;


                                       32
<PAGE>

      "UK Employees" means the employees of TCSL engaged in the UK Business as
      listed in Part 1 of Schedule 18 as amended at Completion to reflect
      changes in the period between signing and Completion provided that such
      changes have occurred in compliance with Clause 10 and the total number of
      UK Employees at Completion does not exceed the number of UK Employees at
      the date of this Agreement unless otherwise agreed in writing by Nice and
      Thales;

      "US Business" means that part of the Business operated as a going concern
      by TCS Inc and all the Assets used in that part of the Business by TCS
      Inc;

      "US Embargo Countries" means any of Burma (Myanmar), Cuba, Iran, Iraq,
      Libya, Sudan, Taliban (Afghanistan), and UNITA (Angola);

      "US Employees" shall mean the Non UK Employees listed on Schedule 19 which
      are employees of TCS, Inc;

      "US Embargo Country Contracts" means any contract with a party resident in
      any of the US Embargo Countries or for the provision of goods or services
      to any person, directly or indirectly, in any of the US Embargo Countries;

      "VAT" means value added tax or its equivalent in any relevant
      jurisdiction;


                                       33
<PAGE>

      "VATA 1994" means the Value Added Tax Act 1994;

      "Warranties" means the warranties given by Thales as set out in Part 1 of
      Schedule 4 and Schedule 5 and references to "Warranty" shall be construed
      accordingly;

      "Waste" means any waste including anything which is abandoned, unwanted or
      surplus, irrespective of whether it is capable of being recovered or
      recycled or has any value;

      "Wordnet 3 Licence" means the Software Licence and Service Agreement dated
      1st March 2002 between TCSL and Origin Data Realisation Limited;

      "Works" means the carrying out of: (a) inspection, investigation, sampling
      and monitoring works; and (b) any works (including the installation,
      operation, repair or replacement of plant or equipment) in order to
      remove, remedial or contain any Environmental Matter or in order to
      prevent an Environmental Matter from arising.

1.2   In this Agreement, unless otherwise specified:

      1.2.1 the singular includes the plural and reference to any gender
            includes the other genders;

      1.2.2 references to persons include bodies corporate, unincorporated
            associations and partnerships;


                                       34
<PAGE>

      1.2.3 words and phrases defined in the Companies Act have the same
            meanings in this Agreement but the word "company" shall be construed
            so as to include any body corporate, company or corporation,
            wherever and howsoever incorporated or established;

      1.2.4 references to "Clauses" are to clauses or sub-clauses of this
            Agreement, references to "Schedules" are to the schedules to this
            Agreement and references within a Schedule to "paragraphs" are to
            paragraphs or sub-paragraphs of that Schedule;

      1.2.5 the expressions "holding company", "subsidiary" and "wholly owned
            subsidiary" shall have the meaning given in the Companies Act 1985
            of the United Kingdom;

      1.2.6 a person shall be deemed to be connected with another if that person
            is connected with another within the meaning of section 839 ICTA
            1988;

      1.2.7 references to times of the day are to London time;

      1.2.8 the expression "control" shall have the meaning given within section
            416 ICTA 1988.

1.3   In this Agreement:

      1.3.1 any reference to any statute or statutory provision includes any
            consolidation or re-enactment of the same


                                       35
<PAGE>

            and any subordinate legislation in force under the same from time to
            time;

      1.3.2 the index and headings are for reference purposes only and shall not
            affect the interpretation of this Agreement;

      1.3.3 references to documents "in the agreed terms" are to documents the
            terms of which have been agreed by or on behalf of the parties and a
            copy of which has been initialled for the purpose of identification
            by or on behalf of the parties; and

      1.3.4 references to writing shall include any methods of reproducing words
            in a legible and non-transitory form.

1.4   The Schedules are an integral part of this Agreement and shall have the
      same force and effect as if expressly set out in the body of this
      Agreement and references to this Agreement shall include the Schedules.

1.5   Any reference to any English legal term for any action, remedy, method of
      legal proceeding, legal concept or matter, legal document, legal status,
      court, official or any legal thing shall in respect of any jurisdiction
      other than England be treated as a reference to the closest equivalent
      English legal term, proceeding concept or matter in that legal
      jurisdiction.

1.6   References to the knowledge, information, belief or awareness of any
      person shall be treated as including any knowledge, information, belief or
      awareness which the person would have if the person had made all usual and
      reasonable enquiries of the Relevant Employees.


                                       36
<PAGE>

1.7   Any reference to any amount of money which is denominated in any currency
      shall where the context so requires or admits be deemed to include a
      reference to the same amount in any other currency, calculated by applying
      the closing mid point spot rate for the previous trading day as published
      in the London edition of the Financial Times on the date on which such sum
      falls to be determined.

2     CONDITIONS

2.1   Completion of the sale and purchase of the Cliffstone Shares, Cliffstone
      Note, Business and Assets shall be conditional upon the following
      conditions being satisfied in accordance with this Agreement:

      2.1.1 in respect of competition and/or anti-trust or any analogous law or
            regulation:

            (a)   a statement having been issued by the UK Office of Fair
                  Trading or the appropriate Minister in terms satisfactory to
                  the Purchaser that is not the intention of the Secretary of
                  State for Trade and Industry to refer the transaction to the
                  Competition Commission or such transaction having been so
                  referred, the Secretary of State for Trade and Industry
                  indicating that the Competition Commission has concluded that
                  such transaction is not expected to operate against the public
                  interest or, if it has not so concluded, that the Secretary of
                  State for Trade and Industry does not propose to prohibit or
                  restrain such transaction and that any undertakings he may
                  require from the Purchaser in lieu of such action


                                       37
<PAGE>

                  are in terms satisfactory to the Purchaser; and

            (b)   receipt of any necessary approval of the Tel Aviv Stock
                  Exchange, the Investment Centre of the Israel Ministry of
                  Industry and Trade and the Office of the Chief Scientist of
                  the Israel Ministry of Industry and Trade to the Issuance of
                  the Nice Shares to Thales; and

            (c)   all other filings, notifications or applications having been
                  made and all consents that are necessary under any relevant
                  national merger control rules, anti-trust or similar
                  legislation having been obtained in terms satisfactory to the
                  Purchaser and any waiting or other time or limitation periods
                  under such rules having expired, lapsed or otherwise
                  terminated in respect of the proposed acquisition by the
                  Purchaser;

      2.1.2 Thales procuring that Origin Data Realisation Limited consents to
            the following in relation to the Wordnet 3 Licence:

            (a)   an assignment from TCSL to Thales Electronics;

            (b)   the grant of a sub-licence from Thales Electronics to TCSL;

            (c)   an assignment or novation of the sub-licence referred to in
                  (b) above from TCSL to UK Purchaser; and


                                       38
<PAGE>

            (d)   an assignment from Thales Electronics to Nice,

                  or such alternative series of transactions with similar effect
                  as Nice may agree with Thales.

2.2   Thales and the Purchasers shall each use all reasonable endeavours to
      procure the due fulfilment of the Conditions as expeditiously as possible
      so far as lies within their respective powers to do so and the Purchasers
      may following written notice to Thales in their sole and absolute
      discretion waive the condition contained in Clause 2.1.2.

2.3   If the Conditions are not fulfilled by 31 December 2002, this Agreement
      (save for Clause 26 (Confidentiality), Clause 29 (Announcements) and
      Clause 31 (Costs) which shall remain in force) shall automatically
      terminate and none of the parties shall have any claim of any nature
      whatsoever against the other parties under this Agreement save that the
      rights and liabilities of the parties which have accrued prior to
      termination shall subsist.

2.4   Thales and the Purchasers undertake to keep one another informed as to
      progress towards satisfaction of the Conditions and in particular to
      disclose in writing to one another anything which will or may prevent any
      of the Conditions from being satisfied by the Completion Date immediately
      it comes to the notice of either of them.

2.5   The Purchasers shall consult and collaborate with Thales with respect to
      any filings, notifications or applications and discussions with any
      relevant, national Governmental Authority or supranational Authority.

3     BUSINESS PROPERTIES


                                       39
<PAGE>

3.1   On Completion the UK Purchaser shall enter into either the Hedge End
      Sublease or the Hedge End Licence as determined by the provisions of Part
      2 of Schedule 3.

3.2   Thales shall indemnify and keep indemnified and hold harmless Nice and the
      UK Purchaser (and, to the extent relevant, any other member of the
      Purchaser's Group) on demand in respect of any losses, liabilities,
      claims, demands, damages, costs and expenses ("Losses") arising from or in
      connection with any claim made to Nice or the UK Purchaser or any member
      of the Purchaser's Group by the Hedge End Landlord in respect of the Hedge
      End Licence or the Purchaser's use or occupation of the Hedge End
      Property.

3.3   Thales shall indemnify and keep indemnified and hold harmless Nice and the
      UK Purchaser (and, to the extent relevant, any other member of the
      Purchaser's Group) on demand in respect of any costs of relocation of the
      Business as contemplated by clause 3.5 ("Relocation Costs") required in
      the event that the Hedge End Landlord requires the UK Purchaser to vacate
      the Hedge End Property.

3.4   Thales shall indemnify and keep indemnified and hold harmless Nice and the
      UK Purchaser (and, to the extent relevant, any other member of the
      Purchaser's Group) on demand in respect of any Losses arising from the
      Hedge End Landlord denying occupation of the Hedge End Property to the UK
      Purchaser provided that such indemnity shall not apply where the UK
      Purchaser has been given written notice to vacate the Hedge End Property
      and the UK Purchaser fails to vacate within such period as would give the
      UK Purchaser a reasonable time to relocate to alternative premises
      pursuant to the procedures specified in Clause 3.5 and provided that in
      the event that the Hedge End Landlord denies occupation as aforesaid the
      UK Purchaser shall vacate the Hedge End Property as soon as reasonably
      practicable pursuant to the procedures specified in Clause 3.5.


                                       40
<PAGE>

3.5   If the Hedge End Landlord requires the UK Purchaser to vacate the Hedge
      End Property then the UK Purchaser shall conduct a search for alternative
      premises which premises shall be within the south east of England
      (excluding the Isle of Wight). Following the identification of appropriate
      premises, the UK Purchaser shall provide details of such premises to
      Thales and agree with Thales a timetable for the relocation and a
      specification for fitting out the relevant premises. The fit out of the
      premises shall be such as to satisfy the UK Purchaser's reasonable
      requirements provided that such requirements shall not exceed the
      specification at the Hedge End Property. The UK Purchaser shall be
      entitled to engage any appropriate professionals to assist it in the
      relocation or other service providers including real estate agents,
      lawyers, office designers, architects, building contractors (and all
      relevant sub-contractors) and removal services provided that Thales shall
      be entitled to require the UK Purchaser to engage such service providers
      as it shall direct from a short list of such firms provided by Thales to
      the UK Purchaser and on terms negotiated by Thales directly with such
      service providers.

3.6   The UK Purchaser shall give all reasonable assistance and support of the
      application for the consent of the Hedge End Landlord to the Hedge End
      Sublease and Nice shall, if so required by the Hedge End Landlord as a
      pre-condition of such consent provide to the Hedge End Landlord its
      guarantee of the obligations of the UK Purchaser's under the Landlord's
      Consent.

3.7   The indemnities at Clauses 3.2 and 3.3 shall not extend to any Losses or
      Relocation Costs (as the case may be) to the extent that such Losses
      and/or Relocation Costs would not have been incurred had the UK Purchaser
      complied with the provisions of Clauses 3.5 and 3.6.

3.8   The indemnities at Clauses 3.2 and 3.3 shall cease to have effect on the
      earlier of (a) the UK Purchaser voluntarily vacating Hedge End Property


                                       41
<PAGE>

      other than on notice from the Hedge End Landlord, and (b) the grant of the
      Hedge End Sublease.

3.9   The leases or other contracts to which any of the Companies or any other
      member of the Thales Group is a party in respect of the occupation by any
      of the Companies of those Business Properties (the "Relevant Business
      Properties") specified in Part 1B of Schedule 3 shall be treated as
      Assumed Liabilities notwithstanding the absence of any landlord's consent
      or any other necessary consent to assignment, transfer or other action
      necessary to vest legal and beneficial title to the Relevant Business
      Properties in the relevant Purchasers and accordingly the Purchasers in
      each jurisdiction shall assume the leases or other contracts in respect of
      the Relevant Business Properties but only to the extent that copies of
      such documents are included in the Disclosure Documents and Clause 21
      shall apply to the leases or other contracts as aforesaid as if they were
      "Contracts" for the purposes of Clause 21 provided that the Purchasers
      shall not be liable for or assume any liability for any act, neglect,
      default or omission in respect of any of the Relevant Business Properties
      committed by any member of the Thales Group or occurring before
      Completion.

4     SALE AND PURCHASE OF THE CLIFFSTONE SHARES AND NOTE

4.1   Subject to the terms of this Agreement, Thales shall or shall procure that
      Thales TRC Inc. shall sell free from Encumbrances and the UK Purchaser and
      the US Purchaser (relying on the Warranties) shall purchase, as at and
      from the Completion Date, the Cliffstone Shares and the Cliffstone Note
      (respectively) together with all rights attached or accruing to them at
      Completion.

4.2   Nice shall not be obliged to complete the purchase of any of the
      Cliffstone Shares unless the purchase of all the Cliffstone Shares, the
      Cliffstone Note


                                       42
<PAGE>

      and the purchase of the Business and Assets under this Agreement is
      completed simultaneously.

4.3   Thales undertakes to take all steps necessary to ensure all rights of
      pre-emption over any of the Cliffstone Shares and Cliffstone Note are
      waived.

4.4   Nice shall provide to Thales all reasonable assistance required by Thales
      to enable it to procure the consent of Cliffstone with respect to the sale
      of the Cliffstone Shares, the Cliffstone Note and the matters referred to
      at Clause 9.2.4.

5     SALE AND PURCHASE OF THE BUSINESS

5.1   Subject to the terms of this Agreement, Thales shall or shall procure that
      the Companies (and in relation to the Assigned IPR and the rights under
      the Wordnet 3 Licence (subject to certain obligations in respect thereof),
      Thales Electronics) shall sell free from all Encumbrances and in
      accordance with the covenant in Clause 5.3 and the Purchasers (relying on
      the Warranties) shall purchase, as at and with effect from the Completion
      Date the Business as a going concern and the Assets (to be divided between
      the Purchasers as provided in Clause 5.4 below), comprising:

      5.1.1 the Machinery and Equipment;

      5.1.2 the Fixtures and Fittings;

      5.1.3 the Inventory;

      5.1.4 the Goodwill;


                                       43
<PAGE>

       5.1.5  the benefit of the Contracts;

       5.1.6  all of the rights against third parties (including, without
              limitation, all rights in connection with such third party
              guarantees, warranties, indemnities, restrictive covenants,
              confidentiality obligations and representations and all rights of
              action of whatever kind whether or not any proceedings have
              commenced) with respect to the Business;

       5.1.7  the Business IPR;

       5.1.8  the Accounts Receivable;

       5.1.9  the Business Information;

       5.1.10 the Records; and

       5.1.11 all other property rights and all other assets of whatsoever
              nature (but not any further Intellectual Property Rights) of any
              member of the Thales Group used exclusively in relation to the
              Business.

5.2    It is understood that if any property rights or other assets or rights of
       whatsoever nature are used in the Business as of the date hereof but are
       not used exclusively in the Business but rather are also used by a member
       of the Thales Group in connection with any other business ("Shared
       Assets")


                                       44
<PAGE>

      such Shared Assets shall be dealt with in accordance with the provisions
      of Clauses 19.6 and 19.7, or clause 24 (as the case may be).

5.3   Thales covenants that it has the right to transfer or to procure the
      transfer of the legal and beneficial title to the Assets, free from
      Encumbrances and from all other rights exercisable by or claims by third
      parties other than the Cross Patents Licence Agreements and the IPR
      Licence, save only in the case of Contracts where express consent of the
      counterparty to such Contract is required for the transfer of such
      Contract.

5.4   Thales shall procure that the Companies shall sell, free from all
      Encumbrances and in accordance with the covenant contained at Clause 5.3
      above, with effect from Completion the Business as a going concern and the
      Assets to the Purchasers as follows:

      5.4.1 TCSL shall sell and the UK Purchaser shall purchase, the UK
            Business;

      5.4.2 TCSA shall sell and the French Purchaser shall purchase, the French
            Business;

      5.4.3 TCS GmbH shall sell and the German Purchaser shall purchase, the
            German Business;

      5.4.4 TCS Inc shall sell and the US Purchaser shall purchase, the US
            Business;


                                       45
<PAGE>

      5.4.5 Thales Electronics shall sell and Nice shall purchase the Assigned
            IPR and the rights under the Wordnet 3 Licence (subject to certain
            obligations in respect thereof).

5.5   In connection with the transactions contemplated by Clause 5.4 above, on
      or before Completion, the Purchasers shall enter into separate business
      transfer agreements in substantially the forms attached hereto as
      Schedules 15, 16 and 17 (each a "Business Transfer Agreement" and
      collectively the "Business Transfer Agreements") with respect to
      transferring the Business as a going concern and transferring the Assets,
      with only such modifications as are necessary in order to maintain
      substantially the same legal meaning and effect under local law as
      provided in this Agreement.

5.6   The parties acknowledge and agree that in the event of a conflict between
      the terms of this Agreement and the terms of any of the Business Transfer
      Agreements, the terms of this Agreement shall prevail.

6     LIABILITIES TO BE ASSUMED

6.1   The Purchasers shall assume responsibility as from Completion for the
      payment and performance of the Assumed Liabilities in accordance with
      Clause 6.2 and shall pay and discharge the Assumed Liabilities as the same
      fall due for payment and shall indemnify Thales, and the Companies against
      the Assumed Liabilities, and Thales declares itself to be trustee of the
      benefit of this Clause for itself and the Companies.

6.2   It is agreed that the Assumed Liabilities shall be assumed as follows:

      6.2.1 the UK Purchaser shall assume the Assumed Liabilities relating to
            the UK Business;


                                       46
<PAGE>

      6.2.2 the French Purchaser shall assume the Assumed Liabilities relating
            to the French Business;

      6.2.3 the German Purchaser shall assume the Assumed Liabilities relating
            to the German Business;

      6.2.4 the US Purchaser shall assume the Assumed Liabilities relating to
            the US Business; and

      6.2.5 Nice shall assume the Assumed Liabilities relating to the Assigned
            IPR and the Wordnet 3 Licence (subject to the satisfaction of the
            Condition at Clause 2.1.2).

6.3   The Thales Group shall continue to be responsible for the Excluded
      Liabilities and shall promptly discharge all debts, liabilities and
      obligations in connection with the Excluded Liabilities and Thales shall
      indemnify the Purchasers against all Excluded Liabilities. Nothing in this
      Agreement shall make the Purchasers liable for or assume any liability for
      any act, neglect, default or omission in respect of any of the Contracts
      committed by the Thales Group or occurring before Completion or impose any
      obligation on the Purchasers for and in respect of any product delivered
      or service performed by the Thales Group in connection with the Business
      before Completion save in respect of:

      (a)   the obligations in respect of warranty work under clause 17.1;

      (b)   the obligations in respect of the provision of Additional Services
            under clause 17.2; and


                                       47
<PAGE>

      (c)   obligations for which a specific provision has been made in the
            Completion Balance Sheet but only to the extent of such provision.

7     PURCHASE PRICE

7.1   The Initial Purchase Price shall be the Initial Cash Consideration and the
      Share Consideration referred to in clauses 7.2.1 and 7.2.2 respectively
      subject to adjustment downwards under Clauses 13 and 7.7 below and subject
      to a further adjustment upwards pursuant to Clause 7.4 or downwards
      pursuant to Clause 7.5.

7.2   The Initial Purchase Price shall comprise and be satisfied as follows:

      7.2.1 Cash consideration of $30,000,000 payable on Completion (the
            "Initial Cash Consideration"); and

      7.2.2 Share consideration of 2,187,500 Nice Shares to be issued on
            Completion to Thales (the "Share Consideration").

7.3   The Purchasers and Thales shall each comply with their respective
      obligations in Schedule 21.

7.4   If the 2002 Sales shall exceed Euro 84,000,000 then Thales shall be
      entitled to a pro rata amount equal to the Sales Earn Out Amount, which
      shall be paid to Thales by Nice on behalf of the Purchasers in accordance
      with Clause 7.6 below.


                                       48
<PAGE>

7.5   If the 2002 Sales shall be less than Euro 75,000,000 then the Purchasers
      shall be entitled to $3,000,000, which amount shall be paid by Thales to
      Nice (on behalf of the Purchasers) in accordance with Clause 7.6 below.

7.6   Any amount payable to either Thales or the Purchasers under Clauses 7.4 or
      7.5 above, as the case may be, shall be paid on the later of (i) the date
      which is within 30 days of the publication by Nice of its audited accounts
      for the financial year ending 31 December 2002 and Nice shall procure the
      publication of such audited accounts no later than 31 March 2003 and (ii)
      10 Business Days following the date upon which the 2002 Sales Statement is
      finally agreed or determined in accordance with Schedule 21. If payment is
      not made by Thales or Nice (as the case may be) on or before the due date
      for payment then interest shall accrue on the amount payable for the
      period from the due date to the date of actual payment at the rate of 2%
      above the base rate of Barclays Bank plc computed on a daily basis until
      and including the date of payment.

7.7   Price adjustment

7.7.1 If A (as defined below in this clause) is less than the Initial Purchase
      Price, then the Initial Purchase Price shall be subject to a downwards
      only adjustment if the value of the Cumulative Orders is lower than Euro
      40 (forty) million, pursuant to the following formula:

      A = $70 (seventy) million * Cumulative Orders
                                  -----------------
                                                 40

      where:

      A is the adjusted value of the Initial Purchase Price.


                                       49
<PAGE>

7.7.2 Nice shall procure that the Purchasers' management shall, as promptly as
      practicable and in any event before or at the same time as the delivery of
      the draft Completion Balance Sheet pursuant to clause 13.2, prepare and
      deliver to Thales and to Nice a statement prepared in accordance with the
      provisions of Clause 7.7.6 showing the Cumulative Orders.

7.7.3 Thales and Nice shall then seek to agree the Cumulative Orders figure by
      following the same procedures and time limits as prescribed for agreeing
      the Completion Balance Sheet pursuant to Clauses 13.2 to 13.9.

7.7.4 To the extent the adjusted value of the Initial Purchase Price (determined
      in accordance with clause 7.7.1) is less than the Initial Purchase Price,
      the consideration shall be reduced by such amount and Thales shall pay
      such amount to Nice in accordance with Clause 7.7.5. If the adjusted value
      is greater than the Initial Purchase Price then the consideration shall
      not be subject to any adjustment pursuant to this provision.

7.7.5 Any payment from Thales to Nice pursuant to Clause 7.7.4 shall be made on
      the date of payment of any shortfall pursuant to clause 13.10 of this
      Agreement in relation to the Completion Balance Sheet. If there is no such
      payment required under clause 13.10, then payment under this clause 7.7.5
      shall be made on the fifth Business Day after the date of determination or
      agreement of the Completion Balance Sheet. If payment under this clause is
      not made on or before the fifth Business Day after the date of
      determination or agreement of the Completion Balance Sheet, Thales shall,
      for the period from such date to the date of actual payment, pay to Nice
      in addition to the sum then payable, interest at the rate of 2% above the
      base rate of Barclays Bank plc computed on a daily basis until and
      including the date of payment.

7.7.6 The following shall qualify as Cumulative Orders for the purposes of the
      foregoing provisions of this Clause 7.7:


                                       50
<PAGE>

      (a)   a legally binding purchase order which constitutes an irrevocable,
            unconditional obligation of the party making the order at the price
            stated in the relevant order and such price is not subject to any
            rebate, discount or other deduction and the other terms and
            conditions do not materially differ from the Business' standard
            terms and conditions; or

      (b)   a letter of intent:

            (i)   which incorporates in reasonable detail the description of the
                  products and services to be supplied and specifies the agreed
                  price, such description and price being contained in the body
                  of the letter of intent or by reference to a quotation from
                  which such description and price can be clearly ascertained;

            (ii)  which is not inconsistent with past practice for the
                  acceptance of letters of intent for the purpose of commencing
                  the process for the fulfilment of an order; and

            (iii) is confirmed by a legally binding purchase order (in
                  accordance with part (a) above) within 30 days; or

      (c)   the letter of intent issued to TCS Inc. by iXP Corporation dated 28
            June 2002 provided such letter of intent is confirmed by a legally
            binding purchase order (as described in paragraph (a) above) issued
            on or before 31 August 2002,

      and for the avoidance of doubt no purchase order or letter of intent from
      any connected person shall qualify as a Cumulative Order. For the


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<PAGE>

      purpose of calculating Cumulative Orders the amount of the order shall be
      taken net of tax, duties and excises.

7.8   In addition to the Initial Cash Consideration and the Share Consideration,
      Thales shall be entitled to up to a further $20,000,000 (twenty million US
      dollars) dependent on net sales of Prism to third parties by any member of
      the Purchaser's Group (but, for the avoidance of doubt, excluding
      Cliffstone) for the period from the Completion Date to 31 December 2004,
      in the amounts specified in the table set out in Schedule 21 (the "Earn
      Out Consideration") such amounts being payable in cash no later than 15
      business days after publication by the board of the Purchasers of the
      audited accounts for the relevant period, on the basis that Nice shall
      procure the publication of such audited accounts by no later than the 31st
      March following the end of the relevant year. The revenue recognition
      policies governing the composition of Prism revenue shall be the revenue
      recognition policies of Nice and accordingly US GAAP as determined by
      Nice's external independent auditors.

7.9   Any payment by the Purchasers to Thales under this clause shall constitute
      a good discharge of the Purchasers' obligations under this clause and the
      Purchasers shall not be concerned to see that the monies paid are applied
      in paying Thales and members of the Thales Group in accordance with their
      respective entitlements.

7.10  The Initial Purchase Price and any other adjustments or payments made
      pursuant to Clauses 7.4 to 7.8, shall be apportioned in accordance with
      Schedule 2.

7.11  All payments referred to in this clause shall be made in immediately
      available funds in Dollars without any set-off, restriction or condition
      and without any deduction or withholding (save only as required by law) by
      a


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<PAGE>

      CHAPS transfer to such account as Nice or Thales shall specify (as the
      case may be).

7.12  For United States federal income tax purposes, the payment payable to TCS,
      Inc. in accordance with the provisions of Clause 7 as such payment may be
      adjusted pursuant to the terms of such Clause, shall be allocated among
      the assets of the US Business in the manner set forth in Schedule 2. US
      Purchaser and Thales on behalf of itself and TCS, Inc. agree to act in
      accordance with such allocation in all tax returns, reports and filings
      and to complete and timely file Form 8594 pursuant to the provisions of
      Section 1060 of the Internal Revenue Code of 1986, as amended and the
      Treasury Regulations promulgated thereunder.

7.13  The parties agree that the allocation of specific amounts to each of the
      Assets, Cliffstone Shares and Cliffstone Note (as set out in Clause 7.10
      above) is not to limit any such amount as is mentioned in Clause 7.12
      above.

7.14  Thales hereby confirms that there is no contractual obligation, or any
      other obligations whatsoever, at the Completion Date on Thales or any of
      the Companies to Cliffstone other than those set out in the provisions of
      the Cliffstone Documents.

8     VAT

8.1   All payments made pursuant to this Agreement shall be exclusive of value
      added tax which shall (where applicable) be payable in addition to the
      payments in question.

8.2   The parties consider that the sale and purchase of the Assets and the
      Business (including the transaction pursuant to the IPR Licence Novation


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<PAGE>

      Deed) from TCSL to the UK Purchaser falls within the provisions of Article
      5 of the Value Added Tax (Special Provisions) Order 1995. TCSL shall use
      its reasonable endeavours to satisfy HM Customs & Excise that the sale and
      purchase and the foregoing agreements are treated as a transfer of a going
      concern ("TOGC") under that Article and accordingly neither as a supply of
      goods nor a supply of services and the UK Purchaser undertakes to provide
      such reasonable assistance and information to TCSL as may be reasonably
      necessary for that purpose.

8.3   If HM Customs & Excise determine in writing that VAT is payable on all or
      part of the consideration payable for the transfer of the Assets and the
      Business (including the transaction pursuant to the IPR Licence Novation
      Deed), from TCSL to the UK Purchaser pursuant to this Agreement and the
      IPR Licence Novation Deed the UK Purchaser upon receipt from TCSL of a
      copy of such written determination from HM Customs & Excise shall pay the
      amount of any VAT which may properly be chargeable on such sale of the
      Assets and the Business pursuant to this Agreement. If the ruling is
      received and it arises as a consequence of any breach by the UK Purchaser
      of the provisions of the Value Added Tax (Special Provisions) Order 1995,
      the UK Purchaser shall pay the amount of any VAT to TCSL on the later of:

      8.3.1 the date prior to the last Business Day on which TCSL is liable to
            account to HM Customs & Excise for such VAT without incurring a
            potential liability to penalties and interest; and

      8.3.2 the date which is five Business Days after the delivery of a valid
            tax invoice containing the particulars prescribed in Regulation 14
            of the Value Added Tax (General) Regulations 1995 (as amended).


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<PAGE>

8.4   Where HM Customs & Excise determine that the sale and purchase of the
      Assets and the Business (including the transaction pursuant to the IPR
      Licence Novation Deed) pursuant to this Agreement was not a TOGC as a
      result of a breach of the provisions of the Value Added Tax Act (Special
      Provisions) Order 1995 by TCSL, the UK Purchaser shall pay the amount of
      any VAT to TCSL no later than five working days after the date upon which
      the UK Purchaser has received an equivalent amount by way of recovery of
      input tax from HM Customs & Excise and/or by way of reduction in its
      liability to output tax.

8.5   If, for any reason whatsoever, Nice or any Purchaser omits to take any
      action required of it under the terms of this Agreement to ensure that all
      or part of the transfer of the Business (including the transaction
      pursuant to the IPR Licence Novation Deed) represents the transfer of a
      going concern for the purposes of VATA or if Nice or the UK Purchaser
      takes any action at any time which results in all or part of the transfer
      being subject to VAT, Nice will pay to Thales upon demand the amount of
      any related assessment for penalties and/or interest which may be issued
      by Customs & Excise to TCSL under the provisions of the aforementioned act
      as a consequence of its failure to account for VAT due upon the transfer.

8.6   Thales warrants that:

      8.6.1 neither TCSL nor any relevant associate defined in paragraph 3 of
            Schedule 10 VATA has made an election to waive exemption in relation
            to any of the Business Properties pursuant to the provisions of
            paragraph 2 of Schedule 10 VATA and neither it nor any relevant
            associate has or will make such an election on or before Completion
            other than pursuant to Clause 8.7. If, subsequently, it transpires
            that TCSL or any relevant associate has made an election in relation
            to any of the Business Properties (other than pursuant to Clause
            8.7) pursuant to the provisions of paragraph 2 of Schedule 10


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<PAGE>

            VATA on or before the earlier of payment of a deposit or Completion,
            and as a consequence VAT becomes chargeable on any of the Business
            Properties (other than the Hedge End Property pursuant to Clause
            8.7), TCSL will deliver a valid tax invoice to the UK Purchaser
            containing the particulars prescribed in Regulation 14 of the Value
            Added Tax Regulations 1995. Upon receipt of the valid tax invoice
            the UK Purchaser shall pay the amount of any VAT to TCSL or any
            relevant associate no later than five working days after the date
            upon which the UK Purchaser has received an equivalent amount by way
            of recovery of input tax from HM Customs & Excise and/or by way of
            reduction in its liability to output tax. TCSL or any relevant
            associate will indemnify the UK Purchaser from any penalties,
            surcharges or interest incurred by the UK Purchaser which arise as a
            result of any amount of VAT that is subsequently determined to be
            chargeable on any of the Business Properties (other than the Hedge
            End Property pursuant to Clause 8.7) or the relevant part thereof;

      8.6.2 recovery of input tax by TCSL in respect of any of the Assets is not
            subject to the provisions contained in Part XIV or XV of the Value
            Added Tax Regulations 1995 (SI 1995/2518); and

      8.6.3 it is registered for VAT as a group registration in which TCSL is
            part under registration number 198955680.

8.7   It is intended that Thales Properties Limited will prior to Completion
      make an election to waive exemption in relation to the Hedge End Property
      and will notify HM Customs & Excise of such election pursuant to
      paragraphs


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<PAGE>

      2 and 3 of Schedule 10 of VATA and has not and will not revoke such
      election prior to Completion.

8.8   If after the UK Purchaser has paid an amount in respect of VAT pursuant to
      this Agreement, HM Customs & Excise determine that such VAT was not
      actually payable, then:

      8.8.1 TCSL will repay such amount to the UK Purchaser no later than five
            Business Days after the date of receipt of such written
            determination from HM Customs & Excise; or

      8.8.2 if TCSL has already accounted for such amount in respect of VAT at
            the time it receives such determination, TCSL shall reclaim such
            amount from HM Customs & Excise and repay such amount to the UK
            Purchaser on receiving repayment of or obtaining credit in respect
            thereof no later than five Business Days after the date of receipt
            of the repayment or the obtaining of the credit.

8.9   TCSL hereby undertakes to deliver to the UK Purchaser at Completion all
      VAT records relating to the Business referred to in Section 49 VATA 1994.
      The UK Purchaser shall preserve such records for such period as may be
      required by law, and shall allow TCSL on reasonable notice, to inspect and
      take copies thereof.

9     COMPLETION

9.1   Time and Place of Completion

      Completion of the sale and purchase of the Cliffstone Shares, Cliffstone
      Note, the Business and Assets shall take place at the offices of the


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<PAGE>

      Purchasers' Solicitors on the third Business Day following satisfaction in
      accordance with this Agreement of the last outstanding Condition, as set
      out in Clause 2, or at such other date and place as may be agreed in
      writing between Thales and Nice.

9.2   Thales' Completion Obligations

      At Completion Thales shall deliver or shall procure the delivery to the
      Purchasers (or to the Purchasers' authorised representatives in the
      relevant jurisdiction of the Companies or the Business) of:

      9.2.1 certificates representing the Cliffstone Shares accompanied by all
            instruments necessary to duly transfer all rights, title and
            interest therein to the UK Purchaser, the Cliffstone Note duly
            executed by Thales TRC Inc. in favour of the US Purchaser;

      9.2.2 any waivers, consents, stock powers or other documents which may be
            necessary to enable the UK Purchaser to be registered as the holder
            of the Cliffstone Shares and the US Purchaser to be registered as
            the holder of the Cliffstone Note;

      9.2.3 Cliffstone's consent in regard to the Investor Rights Agreement
            (referred to in the definition of the Cliffstone Documents) being
            obtained in relation to the transfer of Cliffstone Shares and any
            consent required by the Credit Agreement (referred to in the
            Cliffstone Documents) for the transfer of the Credit Agreement;


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<PAGE>

      9.2.4 (a) the IPR Licence Novation Deed duly executed as at Completion by
            TCSL and Thales Electronics; and

            (b)   the IPR Assignment duly executed by Thales Electronics and
                  Thales assigning the Assigned IPR and the rights under the
                  Wordnet 3 Licence (subject to the obligations set out therein)
                  to Nice;

            (c)   an assignment (accompanied by written evidence of Cliffstone's
                  consent to such assignment incorporating the amendment
                  referred to below) or novation from TCSL in favour of Nice of
                  the Reseller Agreement together with either an amendment
                  deleting the non-compete obligation under clause 2.5 (final
                  sentence) of the Reseller Agreement with effect from the date
                  of assignment or novation of the Reseller Agreement to Nice or
                  an irrevocable waiver of such obligation in favour of Nice and
                  all members of the Purchaser's Group but otherwise on the same
                  terms as the existing Reseller Agreement (as disclosed under
                  the Disclosure Letter).

      9.2.5 the Transitional Services Agreement duly executed as at Completion
            by Thales and/or, the relevant Thales Affiliates;

      9.2.6 a certified copy extract of the minutes of the meeting of the board
            of directors of Thales TRC Inc authorising the


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<PAGE>

              sale of the Cliffstone Shares and the Cliffstone Note, together
              with a certified copy of the certificate of incorporation, by-laws
              and other Charter documents of Thales TRC Inc.;

       9.2.7  a certified copy of the minutes of the meeting of the boards of
              directors of each of the Companies authorising if necessary the
              sale of the Business and Assets in accordance with the terms of
              this Agreement;

       9.2.8  a certified copy extract of the minutes of the board of Thales
              granting to Denis Ranque as Chairman of Thales' Board of Directors
              the power to bind Thales, which shall by reference to French
              corporate law include the authority to enter into this Agreement;

       9.2.9  the Assets which are capable of transfer by delivery with the
              intent that title in such Assets shall pass by such delivery;

       9.2.10 the financial statements more specifically described in Clause
              10.6;

       9.2.11 a letter from Thales to Nice confirming that the Companies have
              complied in all material respects with their obligations under the
              Transfer Regulations qualified only by (i) reference to the
              information provided by Nice to Thales in respect of the post
              Completion steps to be taken by the Purchasers in respect of the
              Business; and (ii) the fact that the parties have agreed that no
              steps towards fulfilment of the obligations of Thales or any of
              the


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<PAGE>

              Companies under the Transfer Regulations have been initiated prior
              to the date of this Agreement;

       9.2.12 a letter from Thales to Nice confirming that from the date of this
              Agreement to Completion, the Thales Group and the Companies have
              complied with the obligations and covenants set out at clauses
              10.1, 10.2, 10.4 and 10.5 of this Agreement;

       9.2.13 such other documents as may reasonably be required by the
              Purchasers (on reasonable notice and in any event by no later than
              twenty one days prior to Completion) to be produced at Completion
              to complete (subject to obtaining relevant consents) the sale and
              purchase of the Assets and the Business and vest title in such in
              the Purchasers (or as Nice may direct) together with all deeds and
              documents of title relating thereto;

       9.2.14 the duly executed documents to be entered into by Thales and the
              Companies and evidence of satisfaction of the other requirements
              in relation to the sale of the US Business, the French Business
              and the German Business as set out in Schedule 10; and

       9.2.15 the Thales representation letter to PricewaterhouseCoopers in
              relation to the Accounts Combination Statement in the agreed
              terms.

9.3    Nice's Completion Obligations


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<PAGE>

      9.3.1 On satisfaction of the obligations of Thales under Clause 9.2 Nice
            shall pay on behalf of itself and the relevant Purchasers to Thales
            on behalf of the Companies and Thales Electronics the Initial Cash
            Consideration (apportioned in accordance with Schedule 2).

      9.3.2 On Completion, payment by the Purchasers to Thales Electronics of
            the Initial Cash Consideration in accordance with Clause 9.3.1 shall
            be made to the following account:

            Bank: Barclays Bank plc

            Sort Code: GB 20-00-00

            Account name: Thales Electronics Plc

            Account No: 00732095

            Swift: BARCGB22

            the receipt of which by Thales shall be a good discharge to the
            Purchasers.

      9.3.3 On Completion, following satisfaction of the obligations of Thales
            under clause 9.2, the Purchasers shall deliver to Thales the Share
            Consideration as follows:

            (a)   certificates representing the Nice Shares comprised in the
                  Share Consideration, duly executed for issuance to Thales or
                  as Thales shall direct, subject to restrictions on transfer
                  consistent with this Agreement and applicable securities laws
                  and marked with legends regarding such restrictions; and

            (b)   any waivers, consents or other documents


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<PAGE>

                  which may be necessary to enable Thales to be registered as
                  the holder of the Nice Shares comprised in the Share
                  Consideration.

      9.3.4 On Completion, following satisfaction of the obligations of Thales
            under clause 9.2, the Purchasers shall deliver to Thales certified
            copies of resolutions of the board of directors of each of the
            Purchasers approving the contents of this Agreement and the
            documents referred to in it and authorising the entry into it and of
            the other documents referred to in it in accordance with the terms
            of this Agreement.

      9.3.5 On Completion, following satisfaction of the obligations of Thales
            under clause 9.2, Nice shall procure that two persons nominated by
            Thales are appointed to the board of directors of Nice in accordance
            with paragraph 3 of Schedule 11.

      9.3.6 On Completion Nice shall deliver to Thales a letter from Nice to
            Thales confirming that from the date of this Agreement to
            Completion, Nice and the Purchasers have complied with the
            obligations and covenants set out at clauses 10.5 and 10.7 of this
            Agreement.

      9.3.7 On Completion Nice shall deliver to Thales the duly executed
            documents to be entered into by the Purchasers in relation to the
            purchase of the US Business, the French Business and the German
            Business.

9.4   Interdependence of Obligations


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<PAGE>

      9.4.1 The obligations of the parties in relation to Completion are
            interdependent so that neither Thales nor the Purchasers shall be
            obliged to proceed to complete if any of the obligations of the
            other party set out in this Clause 9 are not satisfied and completed
            simultaneously.

      9.4.2 All actions at Completion take place simultaneously and no delivery
            or payment is to be taken to have been made until all deliveries and
            payments have been made.

9.5   Default in Completion

      If without the written agreement of Nice and Thales Completion is not
      effected by either of them, whether pursuant to Clause 9.4 or otherwise,
      the following provisions shall apply:

      9.5.1 either Thales or Nice may at any time thereafter serve on the other
            of them notice in writing (a "Completion Notice") to effect
            Completion within 10 Business Days, but notice shall be effective
            only if the party serving it is at the time of the service either in
            all respects ready, able and willing to proceed to effect Completion
            in accordance with the notice or is not so ready, able and willing
            to effect Completion only by reason of the default or omission of
            the other party;

      9.5.2 Upon service of a Completion Notice, the party on which the notice
            is served shall effect Completion (or procure that Completion is
            effected) within 10 Business Days after the date of service of the
            notice (excluding the day of notice) and in respect of that time
            shall be of the essence;


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<PAGE>

      9.5.3 If the party on which the Completion Notice is served does not
            comply with the terms of a Completion Notice, then the party which
            has served the Completion Notice without prejudice to any of its
            rights or remedies available under this Agreement or at law or in
            equity, may:

            (a)   institute proceedings for specific performance; or

            (b)   rescind this Agreement and institute proceedings for damages;

      9.5.4 the party serving a Completion Notice may at the request or with the
            written consent of the other party (but shall not be required to)
            extend the term of the notice for one or more specifically stated
            periods of time and the term of the Completion Notice shall then be
            deemed to expire on the last day of the extended period or periods
            and it shall operate as though this Clause stipulated such extended
            period(s) of notice in lieu of the period otherwise applicable, and
            time shall be of the essence of this Agreement accordingly. An
            extension may be given either before or after the expiry of the
            period of the notice; and

      9.5.5 nothing in this Clause shall preclude a party from suing for
            specific performance without giving a Completion Notice.

9.6   If Completion does not take place on or before the date fixed for
      Completion in accordance with Clause 9.1 (the "Original Completion Date")
      due to


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<PAGE>

      default by the Purchasers, the Purchasers shall, for the period from the
      Original Completion Date to the date of the actual payment, pay to Thales
      in addition to the sum then payable on account of the Initial Purchase
      Price, interest at the rate of 2% above the base rate of Barclays Bank plc
      on the unpaid balance of the sum then payable on account of the Initial
      Purchase Price computed on a daily basis from and including the Original
      Completion Date until and including the date of payment.

10    CONDUCT OF THE BUSINESS PRIOR TO COMPLETION

10.1  Pending Completion Thales shall procure that the Thales Group shall only
      carry on the Business in the usual and ordinary course consistent with
      prior practice so as to maintain the same as a going concern (using all
      reasonable endeavours to protect and preserve the Business, the Assets,
      customer and supplier relations, employee relations, and organisation),
      and shall not make (or agree to make) any payment other than routine
      payments in the ordinary and usual course of trading and shall ensure that
      without the written consent of Nice (such consent not to be unreasonably
      withheld or delayed taking into account the best commercial interests of
      the Business as carried on at the date of this Agreement) and except as
      expressly provided for in this Agreement:

      10.1.1 there will be no material change, other than changes in the
             ordinary day-to-day course of business consistent with prior
             practice, in the assets or liabilities of the Business;

      10.1.2 there will be no discontinuation or cessation of, or disposition
             or other dealing with, any material part of the Business and/or
             Assets;


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<PAGE>

        10.1.3  the Companies will not make any expenditure of a capital nature:

                (a)     on any single item over (pound)10,000; or

                (b)     in aggregate over (pound)50,000.

        10.1.4  there will be no creation, grant or issue or agreement to
                create, grant or issue any Encumbrance (other than liens arising
                by operation of law) over any of the Assets;

        10.1.5  no contracts will be entered into which are abnormal or
                unusually onerous in any material respect;

        10.1.6  no contracts will be entered into the term of which extends more
                than 12 months beyond the Completion Date;

        10.1.7  no contracts will be entered into which have a value (measured
                by cost or revenue) which could exceed(pound)100,000;

        10.1.8  there will be no agreement to terminate or materially vary any
                contract having an outstanding value in excess of (pound)50,000
                and no agreement to terminate or vary any other contract other
                than in the ordinary course of business;

        10.1.9  no change will be made to the terms and conditions of employment
                of the Employees which is material in aggregate and no material
                change will be made to the terms and conditions of employment of
                an individual Key Employee;


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<PAGE>

        10.1.10 no new employee whose basic salary would exceed (pound)30,000
                per annum will be employed and no Employee whose basic salary
                exceeds (pound)30,000 per annum will be dismissed;

        10.1.11 there will be no acquisition or disposal of any interest in any
                real property or grant of any lease agreement, tenancy or
                licence or third party right or other dealing in respect of any
                of the Business Properties;

        10.1.12 no material change will be made in the practices of ordering
                supplies and raw materials, shipping finished goods, invoicing
                customers and collecting debts to those adopted in relation to
                the Business prior to execution of this Agreement;

        10.1.13 no change will be made to the Instem Contracts;

        10.1.14 no licence, sub-licence, assignment or other agreement in
                respect of or affecting any of the Business IPR will be entered
                into save for licences and/or sub-licences of Business IPR
                entered into in the ordinary course of the Business;

        10.1.15 no new contracts will be entered into in respect of Intellectual
                Property Rights which would be material to the Business;


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<PAGE>

        10.1.16 save for debt recovery actions which are instituted in
                accordance with and carried out in a manner consistent with the
                previous practice of the Companies in connection with the
                Business, no litigation or arbitration in relation to the
                Business or Assets will be instituted; and

        10.1.17 no agreement, conditional or otherwise, to do any of the
                foregoing shall be made.

10.2    Thales undertakes that it shall not enter into any negotiations or
        discussions either directly or indirectly relating to the sale of the
        Companies or the Business or any part thereof pending Completion or
        provide any information relating to the Companies or the Business to any
        third party for the purpose of enabling any party other than the
        Purchasers to assess a potential acquisition of the Companies or the
        Business or any part thereof.

10.3    In order to facilitate observance of the provisions of this Clause 10
        the Purchasers nominate Koby Huberman (telephone number: 972 9775 3522)
        (facsimile number 972 9775 3520) as the point of contact for the
        Companies for the period pending Completion. All matters requiring the
        consent of Nice pursuant to this Clause 10 shall be addressed to
        Koby.Huberman@nice.com, cc: Meni.gal@nice.com. For the avoidance of
        doubt, Thales shall not be liable to the Purchasers under this Agreement
        or otherwise, either for any action taken with the prior written
        approval of Nice or for any action taken in the absence of a written
        consent or written refusal of consent, provided such action is taken:

        (a)     more than 24 hours following a request for consent to the
                relevant action has been submitted to Koby Huberman and no
                written objection or refusal to consent has been received by
                Thales when the matter is both urgent in nature (other than as


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<PAGE>

                a result of delay on the part of Thales or the Companies) and
                indicated as such on the relevant request for consent; or

        (b)     in any other case, more than five Business Days following a
                request for consent to the relevant action has been submitted to
                Koby Huberman and no written objection or refusal to consent has
                been received by Thales.

10.4    Between the date of this Agreement and Completion Thales shall and shall
        procure that the Companies shall:

        10.4.1  supply to the Purchasers all such information and documents in
                relation to the Business as the Purchasers or their
                representatives may from time to time reasonably request; and

        10.4.2  maintain all insurance coverage in effect as disclosed to the
                Purchasers; and

        10.4.3  as soon as reasonably practicable give written notice to Nice of
                the occurrence of any event which results or may result in any
                of the Warranties being or becoming incorrect,

        provided that nothing in this Clause 10 shall require Thales or the
        Companies to disclose to Nice or any Purchaser information relating to
        bids, tenders and/or proposals on which it is reasonably expected that
        Nice or any Nice Affiliate may have an interest in a competitive bid,
        tender or proposal.


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<PAGE>

10.5  As from the date of this Agreement, Thales will give to nominated and
      agreed representatives of the Purchasers such access to the Business
      Properties and the Key Employees and to any other premises from which the
      Business is carried on, managed or administered as the Purchasers may
      reasonably request on reasonable notice and during normal business hours
      and such information and assistance as may be necessary to enable the
      Purchasers to monitor the Business, PROVIDED ALWAYS THAT the Purchasers
      shall not communicate with employees (other than the Key Employees),
      customers of or suppliers to the Business without the prior written
      consent (such consent not to be unreasonably withheld) of Thales. Requests
      made by Nice pursuant to this clause shall be addressed to Jim Park
      (telephone: 08707 224000) (email: jim.park@thales-cs.com) whose consent
      shall be taken to be the consent of Thales for the purpose of this Clause.

10.6  Between the date of this Agreement and Completion, Thales, at its own
      expense, shall provide Nice with the audited Carved-Out Accounts (prepared
      in accordance with US GAAP), audited and unaudited financial statements
      relating to the Business consisting of (a) an audited statement of assets
      acquired and liabilities assumed as of December 31, 2001 and 2000 and
      audited statements of operations and changes in cash flow for each of the
      two years ended December 31, 2001, and (b) unaudited statements of assets
      acquired and liabilities assumed as of June 30, 2002 and June 30, 2001,
      and unaudited statements of operations and changes in cash flow for the
      six months ended June 30, 2002 and 2001, in such form as may be required
      by Rule 3-05 or Article 11 of Regulation S-X promulgated under the United
      States federal securities laws, in connection with the preparation and
      filing of any registration statement or periodic report by Nice, including
      reports with respect to the two fiscal years of the Business ended
      December 31, 2001 of independent public accountants, and following the
      Date of Completion Thales shall, at its own expense cause its auditors to
      furnish, upon request by Nice, (a) any accountants' consents required to
      effect one or more SEC filings of such statements within the three year
      period following Completion, and (b) any "comfort letter", in form and
      substance consistent


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      with those generally provided by US auditing firms, reasonably requested
      by an underwriter of Nice securities in connection with a public offering
      or Rule 144A offering of Nice securities being effected within the three
      year period following Completion.

10.7  Between the date of this Agreement and the first to occur of (i)
      Completion, or (ii) 30 November 2002, Nice shall not:

      (a)   complete any registered public offering of its Ordinary Shares or
            ADRs in the US or Israeli public securities markets; or

      (b)   issue any of its Ordinary Shares or ADRs (or securities convertible
            into or exercisable for its Ordinary Shares or ADRs) in an
            unregistered private placement for cash in which the net proceeds to
            Nice from the sale of such securities exceed $1,000,000 and in which
            the purchasers of the securities obtain (through US SEC registration
            or otherwise) securities which are freely transferable under the US
            or Israeli securities laws within less than 12 months of Completion
            (excluding any financing or business transactions, such as debt
            financings or commercial arrangements, in which the issuance of such
            securities for cash is not the primary purpose of the transaction).

10.8  Thales shall, at its own expense, procure that all Intellectual Property
      Rights owned by TCS GmbH and TCSA are assigned to TCSL between the date of
      this Agreement and Completion but in any event prior to the date on which
      the Thales IPR Assignment is entered into.

10.9  Nice undertakes to Thales to put in place, with effect from Completion, an
      incentive program for the Key Employees to incentivise the maximisation of
      2002 Sales (the "Program"). The Program shall provide staged and


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      increasing incentives for the achievement of minimum 2002 Sales of
      EUR75,000,000 and 2002 Sales reflecting the 2002 Sales ranges set out at
      paragraph 3 of Schedule 21. It is agreed that the Program will limit the
      incentives available to double the commissions to which the Key Employees
      are currently entitled and that the Program should make it clear that no
      commissions shall be paid on sales which are outside the current ordinary
      course of the Business in terms of discounting of pricing and terms of
      orders and contracts. Nice shall only pay commissions relating to revenue
      included in the 2002 Sales Statement in respect of the period from
      Completion to 31 December 2002. Details of such program shall be
      communicated for approval to Thales by Nice within two (2) weeks from the
      signature of this Agreement.

11    INDEMNITIES

11.1  Thales shall indemnify and keep indemnified and hold harmless the
      Purchasers (and, to the extent relevant, any other member of the
      Purchasers' Group) on demand in respect of (a) damages awarded by way of
      final judgment; (b) compensation paid on final settlement; (c) reasonable
      legal costs and expenses; (d) reasonable sums paid to third parties in
      order to obtain a licence to avoid infringement; (e) reasonable sums
      incurred in respect of, and other reasonable costs of, development work to
      avoid infringement; and (f) any other reasonable costs incurred to
      mitigate the effect of the infringement suffered or incurred by the
      Purchasers (or any other member of the Purchasers' Group) arising from or
      in connection with any claim that the Prism Product and any variation or
      modification or subsequent version thereof save as set out below or its
      supply, production, sale, licensing, distribution or use infringes any
      third party Intellectual Property Rights, save as follows:

      (a)   to the extent that such infringement results from a modification or
            variation or subsequent version of the Prism Product from the form
            it was in at Completion or from any use or combination of the Prism
            Product with


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<PAGE>

            any other item of hardware, software or other item with which it was
            not used or combined at the date of Completion and where no finding
            of infringement would have occurred were it not for such
            modification, variation, subsequent version, use or combination; or

      (b)   to the extent that any sums claimed are increased as a result of a
            modification or variation or subsequent version of the Prism Product
            from the form it was in at Completion or from any use or combination
            of the Prism Product with any other item of hardware, software or
            other item with which it was not used or combined at the date of
            Completion; or

      (c)   to the extent that the infringement arises from a claim brought
            against the Purchasers (or any other member of the Purchasers'
            Group) by Cliffstone in relation to a breach or termination of the
            Reseller Agreement by the Purchasers (or any member of the
            Purchasers' Group) such breach occurring after Completion; and

      (d)   provided always that Nice (or any member of the Purchasers' Group)
            has used all reasonable commercial endeavours to procure that
            Cliffstone procures the right for Nice (or such other member of the
            Purchasers' Group) to continue to market the Prism Product or modify
            it so that it becomes non-infringing (as set out in the Reseller
            Agreement).

11.2  Thales shall indemnify and keep indemnified and hold harmless the
      Purchasers (and, to the extent relevant, any other member of the
      Purchasers' Group) on demand in respect of (a) damages awarded by way of
      final judgment; (b) compensation paid on final settlement; (c) reasonable
      legal costs and expenses; (d) reasonable sums paid to third parties in
      order to obtain a licence to avoid infringement; (e) reasonable sums
      incurred in respect of, and other reasonable costs of, development work to
      avoid


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        infringement; and (f) any other reasonable costs incurred to mitigate
        the effect of the infringement suffered or incurred by the Purchasers
        (or any other member of the Purchasers' Group) arising from or in
        connection with:

        11.2.1  any claim that any of the products or systems developed by or
                for the Companies or used exclusively in the Business which
                embody the use of the Business IPR and which are used in or
                offered for sale or licensed by the Business at Completion (and
                any variation, modification or subsequent version thereof save
                as set out below) or their supply, production, sale, licensing,
                distribution or use infringe any third party Intellectual
                Property Rights; or

        11.2.2  any breach of Warranty 8.1 as it relates to ownership of
                Business IPR save as follows:

                (a)     to the extent such infringement results from a
                        modification or variation or subsequent version of the
                        products or system from the form they were in at
                        Completion or from any use or combination of them with
                        any other item of hardware, software or other item with
                        which they were not used or combined at the date of
                        Completion and where no finding of infringement would
                        have occurred were it not for such modification,
                        variation, subsequent version, use or combination; or

                (b)     to the extent that any sums claimed are increased as a
                        result of a modification or variation or subsequent
                        version of the


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                  productsor systems from the form they were in at Completion or
                  from any use or combination of them with any other item of
                  hardware, software or other item with which they were not used
                  or combined at the date of Completion; or

            (c)   to the extent that the infringement arises as a result of the
                  fact that, as a result of the act or omission of the Purchaser
                  (or any other member of the Purchasers' Group), the Purchaser
                  (or any other member of the Purchasers' Group) no longer has,
                  after Completion, the benefit of any Intellectual Property
                  Rights which were licensed for use in the Business at
                  Completion, save where Thales or any member of the Thales
                  Group is in breach of Warranties 8.2, 8.3 or 8.6.

11.3  To the extent that the Purchasers fail to recover any losses, liabilities,
      claims, demands, damages, costs and expenses (including legal expenses)
      from Origin Data Realisation Limited ("Origin"), Thales shall indemnify
      and keep indemnified and hold harmless the Purchasers (and, to the extent
      relevant, any other member of the Purchasers' Group) on demand in respect
      of (a) damages awarded by way of final judgment; (b) compensation paid on
      final settlement; (c) reasonable legal costs and expenses; (d) reasonable
      sums paid to third parties in order to obtain a licence to avoid
      infringement; (e) reasonable sums incurred in respect of, and other
      reasonable costs of, development work to avoid infringement; and (f) any
      other reasonable costs incurred to mitigate the effect of the infringement
      suffered or incurred by the Purchasers (or any other member of the
      Purchasers' Group) arising from or in connection with any claim that the
      "Wordnet 3" product developed under the Wordnet 3 Licence (in the current
      version existing at the date of


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<PAGE>

      Completion and any variation or modification or subsequent version thereof
      save as set out below) or its supply, production, sale, licensing,
      distribution or use, infringes any third party Intellectual Property
      Rights save as follows:

      (a)   to the extent that such infringement results from a modification or
            variation or subsequent version of the Wordnet 3 product from the
            form it was in at Completion or from any use or combination of the
            Wordnet 3 product with any other item of hardware, software or other
            item with which it was not used or combined at the date of
            Completion and would not have occurred were it not for such
            modification, variation, subsequent version, use or combination; or

      (b)   to the extent that any sums claimed are increased as a result of a
            modification or variation or subsequent version of the Wordnet 3
            product from the form it was in at Completion or from any use or
            combination of the Wordnet 3 product with any other item of
            hardware, software or other item with which it was not used or
            combined at the date of Completion; or

      (c)   to the extent that the infringement arises from a claim brought
            against the Purchasers (or any member of the Purchasers' Group) by
            Origin in relation to a breach or termination of the Wordnet 3
            Licence; and

      (d)   provided always that Nice (or any other member of the Purchasers'
            Group) has exhausted all contractual remedies which it has against
            Origin under the terms of the Wordnet 3 Licence.

11.4  In respect of any claim that the Third Party Licensed IPR, in whole or in
      part or in any combination, or any products, technology or processes which
      utilise any of the Third Party Licensed IPR, infringe any third party
      Intellectual Property Rights, to the extent that Thales currently has the
      benefit of any indemnity, warranties or other equivalent protection from a
      licensor under


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      any third party agreement relating to any Third Party Licensed IPR, Thales
      subject as provided below shall indemnify and keep indemnified and hold
      harmless the Purchasers (and, to the extent relevant, any other member of
      the Purchasers' Group) on demand in respect of any losses, liabilities,
      claims, demands, damages, costs and expenses (including legal expenses)
      ("Loss") arising from or in connection with such claims. The indemnity
      given by Thales under this clause 11.4 shall only apply:

      (a)   where the third party agreement falls to be assigned or novated in
            favour of the Purchaser (or any other member of the Purchasers'
            Group) and such assignment or novation has not been perfected but
            notwithstanding the foregoing the Purchaser (or any other member of
            the Purchasers' Group) is entitled to exercise rights under such
            third party agreement;

      (b)   to the extent that Thales is able to recover such Loss from the
            licensor under the terms of its agreement with the licensor; and

      (c)   until such time as the benefit of such indemnity, warranties or
            other equivalent protection has passed to the Purchasers (or any
            other member of the Purchasers' Group) under this Agreement,

      Thales shall only be obliged to pay such money to the Purchasers (or any
      other member of the Purchasers' Group) under this Clause as and when it
      receives money from the licensor. The Purchasers shall have the right to
      conduct proceedings in respect of any such claim in the name of Thales,
      subject to the Purchasers giving Thales an indemnity as to costs in
      connection with such claim conducted by the Purchasers.


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11.5  Thales agrees to indemnify and keep indemnified and hold harmless Nice,
      the Purchasers or any member of the Purchaser's Group in respect of any
      losses, liabilities, claims, demands, damages, costs and expenses
      (including legal expenses) reasonably incurred arising from, or in
      connection with, any sums claimed by SMRC (formerly Maroc-Aviation) of
      Morocco ("SMRC") from TCSL in respect of any acts or omissions of TCSL in
      respect of the contract between TCSL, SMRC and the Moroccan Ministry of
      Transport for the supply of Wordnet with radar.

11.6  Thales shall indemnify and keep indemnified and hold harmless the
      Purchasers (and, to the extent relevant, any other member of the
      Purchaser's Group) on demand in respect of any losses, liabilities,
      claims, demands, damages, costs and expenses (including legal expenses)
      reasonably incurred arising from or in connection with any claim by
      Natural MicroSystems Europe S.A, Natural MicroSystems Corporation ("NMS")
      against the Purchasers arising from or related to any claim by NMS
      covering the subject matter of those claims of NMS detailed in the
      Disclosure Letter and relating to the Professional Services Agreement
      dated 23 June 2000 for the development of DETs board and its associated
      software and the Professional Services Agreement dated 8 March 2001.

11.7  Thales shall indemnify and keep indemnified and hold harmless the
      Purchasers (and, to the extent relevant, any other member of the
      Purchasers' group) on demand in respect of:

      (a)   any Taxation, losses, liabilities, claims, demands, damages, costs
            and expenses (including legal expenses) arising from or in
            connection with any breach of Warranty 17.17 (compliance with
            applicable Taxation laws and regulations); and

      (b)   any Taxation in respect of the Business, the Assets or the Employees
            arising in respect of:

            (i)   periods ending on or before Completion;


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            (ii)  transactions effected or deemed to have been effected on or
                  before Completion;

            (iii) income, profits or gains earned, accrued or received on or
                  before Completion; or

            (iii) payments made on or before Completion together with any costs
                  and expenses (including legal expenses) incurred in enforcing
                  the indemnity contained in this clause 11.7.

12    RELEASE OF GUARANTEES

      The Purchasers shall promptly after Completion and with effect from
      Completion, procure the release of Thales, or any Affiliates of Thales (as
      the case may be), from all of its or their respective obligations, duties
      and liabilities whatsoever in respect of the Guarantees where the
      liability guaranteed is an Assumed Liability and pending such release Nice
      hereby undertakes that it will indemnify Thales and/or any relevant
      Affiliate of Thales and keep it (or them) indemnified against all damages,
      costs, expenses or other liabilities suffered or incurred by it (or them)
      in relation to any of the Guarantees where the liability guaranteed is an
      Assumed Liability.

13    COMPLETION BALANCE SHEET

13.1  On the Completion Date or at such earlier time as agreed between Nice and
      Thales, Thales or its representatives will pull and assemble the Inventory
      for counting. Nice and/or its representatives will conduct a comprehensive
      physical stock take of the Inventory and Thales and/or its representatives
      will sign off on each count made by Nice. Nice shall produce a report
      setting out the counted number of each Inventory item. Such report will
      also set out the aggregate value of the Inventory which shall be included
      in the Completion Balance Sheet prepared by the Purchasers' management and
      audited by the


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      Auditors pursuant to clause 13.2 below. If Thales and Nice are unable to
      agree upon the physical stock take within 10 Business Days of Completion,
      the matter shall be submitted for adjudication by the Independent
      Accountants.

13.2  Subject to determination of the stock take pursuant to Clause 13.1, Nice
      shall procure that the Purchasers' management shall, as promptly as
      practicable, and in any event within 60 (sixty) days following the
      determination of the physical stock take ("the First Period"), prepare and
      deliver to Thales and to Nice a draft of the Completion Balance Sheet
      together with a draft certificate (the "Auditors' Certificate") in the
      form set out in Part E of Schedule 9 addressed to Thales and to Nice
      stating that the Completion Balance Sheet (from which the NAV Statement
      shall be determined) has been prepared in accordance with this Agreement.

13.3  Thales and Nice shall attempt to agree the draft Completion Balance Sheet
      as soon as possible and in any event within 30 (thirty) days (hereinafter
      the "Second Period") after receipt of the same under Clause 13.2.

13.4  During the Second Period, Thales' accountants shall be entitled to call
      for and inspect such documents as they shall reasonably consider
      necessary.

13.5  Unless within the Second Period Thales notifies Nice in writing (setting
      out the adjustments, if any, which it proposes should be made to the draft
      Completion Balance Sheet) the draft Completion Balance Sheet shall be
      deemed to be agreed and shall, save in the event of fraud or manifest
      error, become final and binding on Thales and Nice for the purposes of
      this Agreement.

13.6  If by the end of the Second Period the draft Completion Balance Sheet has
      not been agreed, Thales shall meet with Nice so as to resolve in good
      faith


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      any differences within the following 7 (seven) days (the "7 Day Period").
      After the expiry of the 7 Day Period either Nice or Thales may refer the
      matters in dispute to the Independent Accountants. The Independent
      Accountants shall agree, amend or prepare the Completion Balance Sheet and
      determine the Net Asset Value but always in accordance with the Accounting
      Principles insofar as not otherwise agreed in accordance with the
      provisions of this Clause 13. The Independent Accountants shall be
      entitled to call for and inspect such documents as they shall reasonably
      consider necessary. The determination prepared by the Independent
      Accountants shall be delivered to Thales and Nice within 30 days of such
      submission to the Independent Accountants and shall (save in respect of
      manifest error) be final and binding on Thales and Nice for the purposes
      of this Agreement and the Independent Accountants shall act as experts and
      not as arbitrators. In acting under this clause 13.6, the Independent
      Accountants shall be entitled to the privileges and immunities of
      arbitrators. Thales and Nice shall act in good faith towards each other
      regarding such application and in particular shall endeavour with
      reasonable expedition to settle the terms of reference of the Independent
      Accountants.

13.7  Thales shall pay the charges of Thales' Accountants and Nice shall pay the
      charges of the Auditors in respect of work carried out pursuant to the
      provisions of this Clause and the charges of the Independent Accountants
      (if appointed) shall be apportioned between Thales and Nice in such
      proportions as the Independent Accountants may determine in the light of
      the merits of the objections taken by (or on behalf of) Thales to the
      physical stock take pursuant to Clause 13.1 or to the Completion Balance
      Sheet in the form despatched pursuant to Clause 13.2 as the case may be.

13.8  Thales and Nice shall respectively procure, so far as they are able, that
      the Companies, the Purchasers, the Auditors and Thales' Accountants
      respectively shall give each other and to the Independent Accountants
      access to all of their working papers or other information used as a basis
      for preparing the Completion Balance Sheet and access to personnel as may


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      reasonably be required for the purposes of considering and agreeing the
      Completion Balance Sheet.

13.9  Upon the Completion Balance Sheet having become final and binding pursuant
      to this Clause 13 (save in respect of fraud or manifest error), Nice shall
      procure that the Auditors' Certificate is finalised and signed and no
      right of appeal shall be competent with regard thereto, and neither Thales
      nor Nice nor the Independent Accountants shall be entitled to appeal or
      state a case either on a point of law or fact with regard thereto, to any
      court.

13.10 If the Completion Net Asset Value is less than the NAV Target, the amount
      of the consideration shall be reduced by an amount equal to the shortfall
      and Thales shall pay to Nice the amount of any shortfall. If the
      Completion Net Asset Value is more than the NAV Target then the
      consideration will not be subject to any adjustment. Any such payment
      shall be made on or before the fifth Business Day after the date of
      determination or agreement of the Completion Balance Sheet and shall be
      made without set-off, counterclaim, withholding or other deduction (save
      as required by law). If such payment is not made on or before the fifth
      Business Day after the date of determination or agreement of the
      Completion Balance Sheet, Thales shall, for the period from such date to
      the date of actual payment, pay to Nice in addition to the sum then
      payable, interest at the rate of 2% above the base rate of Barclays Bank
      plc computed on a daily basis until and including the date of payment.
      Payment shall be made in US Dollars.

13.11 Nice will prepare and submit to Thales and/or its representative not later
      than sixty (60) days from Completion, drafts (in substantially complete
      form so far as it is able based on the Records) of the Companies'
      Statutory Accounts and tax returns for the period from 1 January 2002 up
      to the Completion Date (the "Draft Documents"). Nice will co-operate with
      Thales and/or its auditors in respect to the audit of the Companies'
      Statutory Accounts and tax return and shall provide appropriate assistance
      and access to the accounting


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        records comprised in the Records acquired by the UK Purchaser under this
        Agreement. Thales shall be responsible for the finalisation of the Draft
        Documentation and the submission of final documents to the relevant
        authorities.

13.12   In the event of manifest error in the preparation of the Accounts
        Combination Statement, the NAV Target shall be adjusted to the extent of
        such manifest error for the purposes of this Agreement.

14      EMPLOYMENT

14.1    UK Employment Matters

        14.1.1  Thales and the Purchasers acknowledge that:

                (a)     the transfer of the UK Business pursuant to this
                        Agreement constitutes a relevant transfer of the whole
                        of the undertaking of the UK Business for the purposes
                        of the Transfer Regulations; and

                (b)     the UK Employees shall be transferred to the UK
                        Purchaser on the Completion Date subject to the right of
                        any of the UK Employees to object to their transfer
                        pursuant to the Transfer Regulations.

        14.1.2  Thales shall be liable for, and shall indemnify and keep
                indemnified the Purchasers in respect of all and any claims,
                proceedings, demands, awards, losses, damages, costs,
                liabilities, interest or expenses (including


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                reasonable legal expenses) (the "Employment Liabilities") which
                may be suffered or incurred by the Purchasers in connection with
                the employment or dismissal of any person who is not an
                Employee.

        14.1.3  Thales shall procure the performance and discharge of all
                contractual, statutory and other obligations in respect of all
                of the UK Employees up to Completion and Thales shall indemnify
                the Purchasers against any Employment Liabilities arising from
                any act or omission of Thales and the Companies or failure by
                Thales and the Companies to discharge any obligation relating to
                any of the UK Employees prior to Completion (excluding any
                liability covered by the indemnity under Clause 14.1.5).

        14.1.4  The Purchasers shall procure the performance and discharge of
                all contractual and statutory and other obligations in respect
                of all of the UK Employees after Completion and the Purchasers
                shall indemnify Thales against any Employment Liabilities
                arising from any act or omission of the Purchasers or the
                failure of the Purchasers to discharge any obligation relating
                to any of the UK Employees after Completion.

        14.1.5  Thales agrees to indemnify the Purchasers against any Employment
                Liabilities it may incur if any UK Employee or his or her
                employee representative brings a claim arising from a failure by
                Thales and its Affiliates to carry out their duty to inform and
                consult under Regulation 10 of the Transfer Regulations provided
                that such indemnity shall not apply to the extent that such
                failure arises from the failure of the Purchasers to provide
                Thales with any


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<PAGE>

                necessary information concerning any measures (within the
                meaning of Regulation 10 of the Transfer Regulations) that the
                Purchaser intends to take in relation to any UK Employee, and
                provided further that such indemnity shall only apply in respect
                of 50% of any such Employment Liabilities to the extent that
                such failure arises from either:

                (i)     the failure of Thales and/or any Thales affiliate to
                        commence compliance with the duty to inform and consult
                        under Regulation 10 of the Transfer Regulations prior to
                        the date of this Agreement; or

                (ii)    the fact that Thales and/or any Thales Affiliate only
                        commences compliance with the duty to inform and consult
                        under Regulation 10 of the Transfer Regulations after
                        the date of this Agreement.

        14.1.6  Nice agrees to indemnify Thales against any Employment
                Liabilities if and to the extent that the same arise from the
                failure of the Purchasers to provide Thales with any necessary
                information concerning any measures (within the meaning of
                Regulation 10 of the Transfer Regulations) that the Purchaser
                intends to take in relation to any UK Employee, and Nice agrees
                to indemnify Thales against 50% of any Employment Liabilities if
                and to the extent that the same arise from either:

                (i)     the failure of Thales and/or any Thales affiliate to
                        commence compliance with the duty to inform and consult
                        under Regulation 10 of the Transfer


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<PAGE>

                        Regulations prior to the date of this Agreement; or

                (ii)    the fact that Thales and/or any Thales Affiliate only
                        commences compliance with the duty to inform and consult
                        under Regulation 10 of the Transfer Regulations after
                        the date of this Agreement.

14.2    Non-UK Employment Matters

        14.2.1  Thales and the Purchasers acknowledge that:

                (a)     the transfer of the Non-UK Business pursuant to this
                        Agreement constitutes a transfer of an undertaking or
                        business of the Non-UK Business for the purposes of
                        European Council Directives 77/187/EEC and 2001/23/EC to
                        the extent that they have been or are to be implemented
                        by legislation in the European countries in which the
                        Non-UK Business operates ("European Transfer
                        Legislation"); and

                (b)     the Non-UK Employees shall be transferred to the
                        Purchasers on Completion subject to the right of any of
                        the Non-UK Employees to object to their transfer
                        pursuant to the European Transfer Legislation or other
                        relevant legislation in the country in which the Non-UK
                        business operates.


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<PAGE>

        14.2.2  Thales shall be liable for and shall indemnify and keep
                indemnified the Purchasers in respect of, all and any claims,
                proceedings, demands, awards, losses, damages, costs,
                liabilities, interest or expenses (including reasonable legal
                expenses) (the "Employment Liabilities") which may be suffered
                or incurred by the Purchasers in connection with the employment
                or dismissal of any person who is not an Employee.

        14.2.3  The Purchasers shall offer employment on the basis of employment
                at will to all US Employees (the "Employment Offers"). The
                Employment Offers shall provide for the same base salary to
                which the US Employees are currently entitled as specified in
                the Disclosure Documents, and shall also contain the offer of
                additional benefits comprising the benefits offered by Nice to
                its employees in the United States.

        14.2.4  In the event that any of the US Employees decline an Employment
                Offer, such US Employee shall not be an Employee.

        14.2.5  Thales shall procure the performance and discharge of all
                contractual, statutory and other obligations in respect of all
                of the Non-UK Employees up to Completion and Thales and the
                Companies shall indemnify the Purchasers against any Employment
                Liabilities arising from any act or omission of Thales and the
                Companies or failure by Thales and the Companies to discharge
                any obligation relating to any of the Non-UK Employees on or


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<PAGE>

                prior to Completion (excluding any liability covered by the
                indemnity under Clause 14.2.7).

        14.2.6  The Purchasers shall procure the performance and discharge of
                all contractual and statutory and other obligations in respect
                of all of the Non-UK Employees after Completion and the
                Purchasers shall indemnify Thales against any Employment
                Liabilities arising from any act or omission of the Purchasers
                or the failure of the Purchasers to discharge any obligation
                relating to any of the Non-UK Employees after Completion.

        14.2.7  Thales agrees to indemnify the Purchasers against any Employment
                Liabilities it may incur if any Non-UK Employee or his or her
                employee representative brings a claim arising from a failure by
                Thales and/or its Affiliates to carry out their duty to inform
                and consult under European Transfer Legislation or other
                relevant legislation in any other country in which the Business
                operates provided that such indemnity shall not apply to the
                extent that such failure arises from the failure of the
                Purchasers to provide Thales with any necessary information
                concerning any measures that the Purchaser intends to take in
                relation to any Non-UK Employee, and provided further that such
                indemnity shall only apply in respect of 50% of any such
                Employment Liabilities to the extent that such failure arises
                from either:

                (i)     the failure of Thales and/or any Thales affiliate to
                        commence compliance with the duty to inform and consult
                        under the European Transfer Legislation applicable to
                        the relevant Non-UK Employee prior to the date of this
                        Agreement; or


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<PAGE>

                (ii)    the fact that Thales and/or any Thales Affiliate only
                        commences compliance with the duty to inform and consult
                        under the European Transfer Legislation applicable to
                        the relevant Non-UK Employee after the date of this
                        Agreement.

        14.2.8  Nice agrees to indemnify Thales against any Employment
                Liabilities if and to the extent that the same arise from the
                failure of the Purchasers to provide Thales with any necessary
                information concerning any measures (within the meaning of
                applicable European Transfer Legislation) that the Purchaser
                intends to take in relation to any non- UK Employee, and Nice
                agrees to indemnify Thales against 50% of any Employment
                Liabilities if and to the extent that the same arise from
                either:

                (i)     the failure of Thales and/or any Thales affiliate to
                        commence compliance with the duty to inform and consult
                        under applicable European Transfer Legislation prior to
                        the date of this Agreement; or

                (ii)    the fact that Thales and/or any Thales Affiliate only
                        commences compliance with the duty to inform and consult
                        under applicable European Transfer Legislation after the
                        date of this Agreement.

        14.3    Surplus Employees

        14.3.1  Nice shall terminate the employment of the Surplus Employees
                after Completion in accordance with the provisions of Clauses
                14.3.2, 14.3.3 and 14.3.4.


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        14.3.2  Nice agrees that the relevant Purchaser shall consult with
                Thales concerning the termination of the employment of the
                Surplus Employees after Completion and shall take such steps as
                are directed by Thales in writing provided that nothing in this
                Clause 14 shall require any of the Purchasers to take any action
                which is unlawful.

        14.3.3  Nice agrees that it shall not make any offer of settlement or
                compromise to any of the Surplus Employees in relation to the
                termination of their employment without the prior consent of
                Thales.

        14.3.4  In the event that any court, tribunal or any other official body
                makes any decision, ruling or judgement that the termination of
                employment of any of the Surplus Employees shall be set aside or
                invalidated, or it is otherwise ruled that any such Surplus
                Employee shall be retained by Nice or any of the Purchasers then
                the provisions of Clause 14.3.5 shall apply in relation to the
                continued employment of such Surplus Employee(s).

        14.3.5  Thales agrees to indemnify and keep indemnified the Purchasers
                against any and all Employment Liabilities in relation to the
                employment of all the Surplus Employees ("Employment Costs") and
                all and any Employment Liabilities in relation to terminating
                the employment of all the Surplus Employees ("Termination
                Costs"), which may be suffered or incurred by the Purchasers as
                a result of employing and/or terminating the employment of the
                Surplus Employees. Employment Costs include but are not limited
                to all salaries or other contractual remuneration or payments
                (excluding bonuses and commissions payable on post Completion
                sales or performance which shall be borne by Nice) required to
                be paid to the Surplus Employees in respect of their employment
                and all and any costs or expenses incurred


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<PAGE>

                by the Purchasers in respect of the Surplus Employees including
                but not limited to providing benefits to the Surplus Employees
                and any social security contributions or income tax payments
                whether incurred before or after the date that the employment of
                the last of the Surplus Employees terminates. For the avoidance
                of doubt Termination Costs shall include, but not be limited to
                all and any payments or claims made to or by the Surplus
                Employees in respect of the termination of their employment,
                including any payment ordered by a competent court or tribunal
                including any award, fine or penalty. In respect of this Clause
                14.3.5, Employment Liabilities shall include all legal expenses
                incurred at Thales' direction or otherwise reasonably and
                necessarily incurred by Nice.

        14.3.6  Thales and Nice shall agree before Completion an estimated
                amount of the total Termination Costs (the "Estimated Costs")
                and Thales shall pay to Nice 20% of the Estimated Costs on
                Completion.

        14.3.7  Thales will pay to the French Purchaser or the German Purchaser
                (whichever is relevant) no later than 1 month before the date on
                which the Surplus Employees' salaries are due each month (the
                first such payment to be made on Completion), an amount equal
                to:

                (a)     all salaries or other contractual remuneration or
                        payments (excluding bonuses and commissions payable on
                        post Completion sales or performance which shall be
                        borne by Nice) due to the Surplus Employees in respect
                        of their employment for that month, together with any
                        other social security contributions or income tax
                        payments due; and


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                (b)     an administration charge which shall be equal to 3% of
                        the monthly Employment Costs of the Surplus Employees.

                        Any payment not made to the relevant Purchaser on the
                        due date shall incur interest at a rate of 2% above the
                        base rate of Barclays Bank plc computed on a daily basis
                        until and including the date of payment.

        14.3.8  Thales will pay to Nice upon demand any other amounts becoming
                due under Clause 14.3.5. Any payment not made to Nice within 7
                days of demand shall incur interest at a rate of 2% above the
                base rate of Barclays Bank plc computed on a daily basis until
                and including the date of payment.

14.4    Any claim under the indemnities contained in this Clause 14 shall be
        dealt with as a "Third Party Claim" in accordance with Clause 22.17 to
        22.21.

15      DEBTS AND ACCOUNTS RECEIVABLE

15.1    Thales agrees that it will if so requested by Nice use or procure that
        the Companies or other members of the Thales Group shall use all
        reasonable endeavours (at the expense of Nice) to assist in the
        collection of the Accounts Receivable.

15.2    Thales will procure that the Purchasers shall have access to view the
        bank accounts of the Companies into which Accounts Receivable are paid
        for a period of 15 months following Completion. Thales will, and will
        procure that the Companies and other members of the Thales Group will,
        hold any payments in respect of the Accounts Receivable received by any
        member of the Thales Group upon trust for the Purchasers and will
        account to Nice for the same as soon as reasonably practicable and in
        any event within 7 days of demand by way of a telegraphic transfer to
        the following account:


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      Bank:             Mellon Bank, Pittsburg, PA 15285

      ABA #:            043-000-261

      Credit To:        Merrill Lynch

      Account #:        1011730

      For Further Credit to:     Nice

      Account #:        879-07L19

      Swift:            Melnus 3P

      If Thales fails to pay to Nice an amount in respect of Accounts Receivable
      within 7 days of demand then Thales shall pay interest at the rate of 2%
      above the base rate of Barclays Bank plc on such sum until the date of
      actual payment.

15.3  The Purchasers shall take such steps to collect the Accounts Receivable as
      is consistent with the prior practice of the Companies in connection with
      the Business provided that this obligation shall not require the
      Purchasers to institute or threaten any proceedings to collect the
      Accounts Receivable or to cease doing business with the relevant customer
      or to take any step which is not at the date of this Agreement a step or
      proceeding that would not be taken by the Companies in the collection of
      debts of the Business as part of the normal routine of the Business in the
      collection of debts of the Business.

15.4  Prior to the date which is 15 (fifteen) months after the Completion Date,
      Thales shall not itself take any step to collect any of the Accounts
      Receivable (unless requested by Nice in accordance with Clause 15.1), and
      shall not do anything to hinder their collection by the Purchasers.

15.5  If Thales should receive any communication or payment in respect of any
      Accounts Receivable, it shall as soon as reasonably practicable give a
      copy of such communication or payment or details in writing to the
      Purchasers.


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15.6  If prior to the date which is 15 (fifteen) months after Completion the
      Purchasers shall, without the written consent of Thales, settle,
      compromise or release any of the Accounts Receivable then the original
      total amount of the relevant Accounts Receivable settled, compromised or
      released shall not be capable of reassignment to Thales pursuant to Clause
      15.9.

15.7  The Purchasers will, from the date of Completion until the first
      anniversary thereof provide to Thales within 20 days of the end of each
      calendar month a statement showing the Accounts Receivable received in the
      previous month and the balance of Accounts Receivable still to be
      received.

15.8  If on or after 15 (fifteen) months from the Completion Date, the Purchaser
      shall have failed to recover any Account Receivable, provided that:

      (a)   the Purchasers are not in breach of their obligations in Clause 15.3
            and have provided a description of the steps taken pursuant to such
            obligations, including any copy correspondence relating to the
            collection of the relevant Accounts Receivable; and

      (b)   the Purchasers have not settled, compromised or agreed to release
            such Account Receivable (whether in whole or in part) without the
            written consent of Thales,

      then the provisions in Clause 15.9 shall take effect.

15.9  Subject to the provisions of Clause 15.8:


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      15.9.1 the relevant Purchaser shall be entitled to assign all its rights
            and interest in such Account Receivable to Thales (or as it may
            direct); and

      15.9.2 upon such assignment:

            (a)   Thales shall pay or procure the payment in full to the
                  relevant Purchaser of the Account Receivable to the extent not
                  previously received by the Purchaser; and

            (b)   the Purchaser shall provide Thales with a statement in respect
                  of each Account Receivable assigned pursuant to clause 15.9.1
                  setting out the action taken by the Purchaser in the
                  collection of the Accounts Receivable, together with any
                  relevant correspondence relating thereto; and

      15.9.3 following payment under Clause 15.9.2 Thales shall be free to take
            such steps as it shall deem appropriate to collect the Account
            Receivable.

15.10 In the event that any Account Receivable becomes unrecoverable due to
      either:

      (a)   the insolvency of the debtor; or


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      (b)   where any part or all of the Account Receivable is disputed by the
            debtor and where Thales acknowledges that such Account Receivable is
            incorrect in whole or part or otherwise not a valid debt
            outstanding;

      then the provisions of clause 15.9 shall apply to the Account Receivable
      (or the unpaid amount) regardless of whether 15 months has elapsed since
      the date of Completion.

15.11 The Purchasers agree that they will, if so requested by Thales, use all
      reasonable endeavours (at the expense of Thales) to assist Thales in the
      collection of any Account Receivable re-assigned pursuant to Clause 15.9.
      The Purchasers will hold any payment in respect of any Account Receivable
      re-assigned pursuant to Clause 15.9 upon trust for Thales and will account
      to Thales for the same as soon as reasonably practicable and in any event,
      within 7 days of demand.

16    INVENTORY

16.1  Following the expiry of the year ending 31 December 2003, the Purchasers
      shall procure that the auditors of the Purchasers shall calculate the
      value of the Inventory included in the Completion Balance Sheet unsold at
      31 December 2003 (if any) ("the Unsold Inventory") by reference to its
      book value in the Completion Balance Sheet (the "Inventory Shortfall
      Amount") and the Purchasers shall serve upon Thales a notice (the
      "Inventory Shortfall Notice") of the amount of the Inventory Shortfall
      Amount and details of the calculation of such amount. Upon receipt of the
      Inventory Shortfall Notice, Thales shall have 10 days in which to inspect
      the relevant Inventory and to either agree the Inventory Shortfall Amount
      or serve a notice (a "Notice of Objections") on the Purchasers giving
      reasons why the amount is disputed.


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      If no Notice of Objection is served in the 14 day period referred to above
      then Thales shall be deemed to have agreed the Inventory Shortfall Amount.
      If the Inventory Shortfall Amount is not agreed within 14 days of service
      of the Notice of Objections, then either party may appoint an independent
      firm of accountants (the "Independent Firm") to determine the amount of
      the Inventory Shortfall Amount. The Independent Firm shall act as experts
      and not as arbitrators. The determination of the Independent Firm shall be
      binding and final save in respect of manifest error. The costs of the
      Independent Firm shall be shared equally between Thales and the
      Purchasers.

16.2  Following agreement or determination of the Inventory Shortfall Amount
      Nice shall serve upon Thales a notice confirming that Unsold Inventory is
      available for collection upon reasonable notice with details of the
      location of the Unsold Inventory.

16.3  Upon the earlier of the collection of the Unsold Inventory and 10 Business
      Days from the date of the notice referred to in Clause 16.2 above Thales
      shall pay to the Purchasers such Inventory Shortfall Amount.

16.4  The Purchasers agree that Inventory held at Completion shall be
      incorporated into any products sold prior to 31 December 2003 which
      incorporate categories of Inventory held at Completion unless all items of
      the relevant category of Inventory have been exhausted.

17    WARRANTY WORK AND ADDITIONAL SERVICES

17.1  Thales agrees to indemnify and keep indemnified the Purchasers on demand
      from time to time in respect of the cost to the Purchasers of performing
      warranty work under Contracts where the sales under such Contracts were
      recognised prior to the Completion Date to the extent that such
      expenditure


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      in aggregate exceeds the reserve for such amounts provided in the
      Completion Balance Sheet. For the purposes of this clause the cost to the
      Purchasers of performing warranty work, subject to the provisions of
      Clause 17.4, shall be the invoiced cost where the work is performed by a
      third party contractor and where the work is performed by a Purchaser's
      own labour force, at an equivalent cost as the relevant Purchaser could
      have had the work performed by a third party contractor.

17.2  Where sales are recognised prior to Completion under any Contract where
      the customer has the right under the Contract to receive additional
      services or products ("Additional Services"), the Purchasers hereby agree
      to perform the Additional Services demanded by the customer provided
      always that:

      (a)   where the customer has an obligation to pay for the Additional
            Services, the Purchasers shall be directly entitled to such payment;
            and

      (b)   where the existing Contract does not provide for further payment by
            the customer and no specific provision or inadequate provision has
            been made in the Completion Balance Sheet, Thales shall pay the cost
            of such Additional Services (or the amount not provided for, as the
            case may be) to the Purchasers. In such case, the cost to the
            Purchasers of performing the Additional Services, subject to the
            provisions of Clause 17.4, shall be the invoiced cost where the work
            is performed by a third party contractor and where the work is
            performed by a Purchaser's own labour force, at an equivalent cost
            as the relevant Purchaser could have had the work performed by a
            third party contractor.

17.3  Thales will, and will procure that the Companies and other members of the
      Thales Group will, hold any payments in respect of the Additional Services


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      made to them upon trust for the Purchasers and will account to the
      Purchasers for the same on demand.

17.4  In performing any warranty work which is governed by Clause 17.1 or
      Additional Services which are governed by Clause 17.2 the work carried out
      and the standard of such work shall be such work at such standard as is
      reasonably necessary to comply with the obligations provided for by the
      relevant Contract and the cost of the performance of the relevant work,
      whether carried out by a Purchaser's own workforce or a third party
      contractor, shall be calculated accordingly.

18    INSTEM Manufacturing Agreement

18.1  For the avoidance of doubt, Nice or its nominee assumes the rights and
      obligations of TCSL under the Instem Contracts.

18.2  "Manufacturing Management Charge" and "Contract Year" shall have the
      meanings given in the Instem Manufacturing Agreement.

18.3  Thales shall indemnify and keep indemnified the Purchasers on demand
      following the end of the relevant Contract Year in respect of any
      shortfall payments and applicable Manufacturing Management Charge which
      fall to be made pursuant to Clause 14 of the Instem Manufacturing
      Agreement as follows:

      (a)   100% of the shortfall together with the Manufacturing Management
            Charge applicable to that shortfall in the first Contract Year as
            provided in Clause 14.2 of the Instem Manufacturing Agreement; and


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<PAGE>

      (b)   50% of the shortfall in the second Contract Year as provided in
            Clause 14.3 of the Instem Manufacturing Agreement.

18.4  Nice shall procure the delivery to Thales at the request of Thales of all
      information reasonably necessary to verify the amount of any payment due
      to be paid by Thales under Clause 18.3.

19    ACTION AFTER COMPLETION

19.1  Thales will procure that all notices, correspondence, information, orders
      or enquiries relating to the Business which are received by any member of
      the Thales Group on or after Completion shall be passed to Nice as soon as
      is reasonably practicable.

19.2  Thales will procure that all monies or other items which are received by
      the Thales Group on or after Completion in connection with the Business
      shall as soon as reasonably practicable and in any event within 7 days be
      passed or paid to Nice or such member of Nice Group as Nice may direct
      and, pending such passing or payment, shall be held on trust for Nice or
      such member. Nice will procure that all monies or other items which are
      received by any member of Nice Group on or after Completion in connection
      with any business of any member of the Thales Group which is not acquired
      pursuant to this Agreement shall, as soon as reasonably practicable and in
      any event within 7 days, be passed or paid to Thales or such member of the
      Thales Group as Thales may direct and, pending such passing or payment,
      shall be held on trust for Thales or such member.

19.3  The Purchasers shall following Completion retain in good order and for a
      period not less than that for which Thales retains any liability under
      this


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      Agreement, all of the books, accounts, records and returns of the Business
      in respect of the period prior to the Completion Date.

19.4  The Purchasers shall, following Completion, provide to Thales or any
      member of the Thales Group in response to reasonable request for such
      information from Thales:

      (a)   all reasonable access during business hours on reasonable notice to
            examine (and if necessary to take copies of) such books, accounts,
            records and returns as are referred to in Clause 19.3; and

      (b)   all reasonable access to Nice's employees as it may reasonably
            request (and at Thales' cost) to enable Thales to deal with any
            correspondence, telephone calls, queries or requests from third
            parties including, without limitation, any governmental or
            regulatory authority and any person who was a customer or supplier
            of the Business prior to the Completion Date; and

      (c)   such other information and assistance as may reasonably be required
            by Thales,

      in order for Thales of any Thales Affiliate to prosecute, defend of
      otherwise deal with any liability comprised in the Excluded Liabilities.

19.5  Save insofar as such costs arise in relation to the Purchaser recording
      title to any Business IPR at any relevant registry, Thales shall at its
      own cost, from time to time on reasonable notice, do or procure the doing
      of all such acts and/or execute or procure the execution of all such
      documents in a form required and necessary for giving full effect to this
      Agreement and securing to the Purchasers the full benefit of the Business
      and Assets and the other


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<PAGE>

      rights, powers and remedies conferred upon the Purchasers in this
      Agreement.

19.6  In respect of any Shared Assets, Thales shall use its reasonable
      endeavours to secure for the Purchasers, for the same period as any member
      of the Thales Group has such benefit and/or use, the continued benefit
      and/or use of such Shared Assets in the same manner as the Shared Assets
      were used in the Business in the 12 month period prior to Completion and
      Thales shall procure that the cost to the Purchasers for the continued
      benefit or entitlement to such Shared Assets shall be no greater than the
      historical cost to the Business of such benefits or entitlements subject
      to a reasonable inflation allowance.

19.7  For the avoidance of doubt and without prejudice to clause 19.6, Thales
      shall grant or procure the grant to the Purchasers of the right and
      licence to the full benefit and use (as enjoyed by the Business prior to
      Completion) of all and any Intellectual Property Rights (other than
      Excluded Trade Marks) which are Shared Assets and which are owned by
      Thales or any member of the Thales Group, on a non-exclusive perpetual,
      irrevocable, royalty free, fully paid up basis for use exclusively in the
      business being acquired hereunder, except to the extent that such licence
      cannot lawfully be granted under any statutes or regulations in which case
      such licence shall be granted to the Purchasers on the most favourable
      lawful terms.

19.8  Exchange of Nice Shares for Nice ADRs

      19.8.1    Upon effectiveness of the Shelf Registration Statement (as
                defined in the Registration Rights Agreement), Nice shall
                remove, or cause to be removed, from the certificates
                representing the Nice Shares comprising the Share Consideration
                the restrictive legend relating to the Securities Act of 1933,
                as amended, and shall use commercially reasonable efforts to
                ensure that such Nice


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                Shares are thereafter eligible for deposit under the Deposit
                Agreement dated as of January 24, 1996, as amended and restated
                as of July 22, 1997, by and among Nice, The Bank of New York, as
                Depositary thereunder, and the owners and holders of Nice ADRs
                thereunder (the "ADR Facility"), in exchange for Nice ADRs
                representing such Nice Shares. Notwithstanding the foregoing,
                the Nice Shares comprising the Share Consideration and any Nice
                ADRs issued in exchange therefore shall continue to be subject
                to restrictions on transfer consistent with this Agreement and
                Schedule 11 attached hereto and the standstill agreement
                referred to therein.

        19.8.2  In order to ensure compliance with the contractual restrictions
                on transfer and manner of sale set forth in Schedule 11 attached
                hereto, at Completion Thales shall designate one broker or
                dealer of Thales' choice through whom Thales will coordinate and
                effect any and all sales of any Nice Shares or Nice ADRs
                comprising the Share Consideration, shall provide Nice with
                contact information for a designated contact person at the
                offices of such broker or dealer, and shall advise such broker
                or dealer in writing (with receipt acknowledged by such broker
                to Nice and Thales) of the restrictions set forth in Schedule 11
                attached hereto, including providing such broker or dealer with
                a copy of Schedule 11. Thales may change such designated broker
                or dealer at any time by providing notice of such change to
                Nice, provided such newly designated broker or dealer is advised
                in writing (with receipt acknowledged by such broker to Nice and
                Thales) of the restrictions set forth in Schedule 11 attached
                hereto, including providing such broker or dealer with a copy of
                Schedule 11, and provided that at all times only


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                one broker or dealer shall be designated as the applicable
                broker or dealer under this Section 19.8.2.

19.9    Embargo Contracts

        19.9.1  The UK Purchaser undertakes to Thales with, subject to Clause
                19.9.4, effect from Completion to act as sub-contractor to TCSL
                and to carry out and perform and complete all the outstanding
                obligations and liabilities created by or arising under the
                Embargo Contracts and shall indemnify Thales and keep it fully
                indemnified against all liabilities, losses, actions,
                proceedings, costs, claims, demands and expenses brought or made
                against or incurred by Thales and/or TCSL in respect of the
                non-performance or defective or negligent performance or
                termination of the Embargo Contracts following Completion.

        19.9.2  In consideration for the UK Purchaser agreeing to act as
                sub-contractor to TCSL and fulfil the obligations of TCSL under
                the Embargo Contracts pursuant to Clause 19.9.1, Thales shall or
                shall procure that the benefit of all payments received by TCSL
                or any member of the Thales Group shall be held on trust for
                Nice and shall be passed to the UK Purchaser as soon as
                reasonably practicable following receipt.

        19.9.3  The UK Purchaser acknowledges that the performance of the
                Embargo Contracts shall include all interface with the relevant
                distribution channel and if relevant, end-user, and that TCSL
                shall merely hold the Embargo Contracts in its name, and Thales
                agrees to procure that TCSL shall not amend the terms of the
                Embargo Contracts.


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        19.9.4  The UK Purchaser shall take no steps in the performance of the
                Iran Contract unless and until advised to do so by TCSL in
                writing.

19.10   Coppice Developments Limited

        Following Completion the UK Purchaser agrees that it will perform the
        obligations of TCSL to Coppice Developments Limited ("Coppice") under
        the third party manufacturer's agreement between TCSL and Coppice dated
        5 February 2002 (a copy of which is attached to the Disclosure Letter)
        (the "Coppice Contract") in accordance with its terms at the date of
        this Agreement and Thales shall make payments to the UK Purchaser in the
        same amounts and on the same terms as the payments due to TCSL from
        Coppice under the terms of the Coppice Contract. Thales agrees to
        procure that TCSL shall not amend the terms of the Coppice Contract.

20      INSURANCE CLAIMS

        To the extent that an accident occurs or has occurred or any loss or
        damage is incurred or has been incurred at any time on or before the
        date of Completion in relation to the Business which is covered by
        insurance policies in the name of or otherwise maintained by any member
        of the Thales Group then Thales shall or shall procure that the relevant
        member of the Thales Group shall, subject to being indemnified by the
        relevant Purchaser in respect of all costs reasonably incurred in
        connection with pursuing such claim or loss, pursue such claim or loss
        on behalf of the relevant Purchaser and, upon receipt of insurance
        monies in respect of such claim or loss, pay such monies forthwith to
        the relevant Purchaser net of all expenses (including legal fees (if
        any) incurred with the prior written consent of Nice) incurred and not
        previously reimbursed by the relevant Purchaser.


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21      THIRD PARTY CONSENTS

21.1    Without prejudice to the Condition in clause 2, the subject of which
        shall not be governed by this Clause 21, if any consent or approval of
        any person who is not a party to this Agreement is required to enable
        the relevant Purchaser to take the assignment of or perform any Contract
        and any such consent or approval has not been received at or prior to
        Completion:

        21.1.1  this Agreement shall not constitute an assignment or attempted
                assignment of any such Contract whose terms would be broken by
                an assignment or attempted assignment;

        21.1.2  the assignment of each Contract shall be conditional upon such
                consent, and the parties shall co-operate to obtain such consent
                as soon as practicable;

        21.1.3  until such time as such consent or approval is received, the
                Companies shall be deemed to, and Thales shall procure that the
                Companies shall, insofar as is legally possible, hold the
                benefit thereof in trust for the Purchasers and the Purchasers
                shall (if such sub-contracting is permissible and lawful under
                the Contract in question) as the relevant Company's
                sub-contractor perform all the obligations of the relevant
                Company under such Contract.

21.2    Where following Completion, any of the Purchasers act as the
        sub-contractor to any of the Companies in the performance of any
        Contract in accordance with Clause 21.1.3 the Purchasers shall indemnify
        the relevant Company


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<PAGE>

      and keep it fully indemnified against all liabilities, losses, action,
      proceedings, costs, claims, demands and expenses brought or made against
      or incurred by the relevant Company in respect of the non-performance or
      defective or negligent performance by the relevant Purchaser of the
      relevant Contract.

22    WARRANTIES AND LIMITATIONS ON LIABILITY

22.1  Thales warrants to the Purchasers that each of the Warranties set out in
      Part 1 of Schedule 4 and Schedule 5 are true and accurate at the date of
      this Agreement.

22.2  Nice warrants to Thales that each of the warranties set out in Part 2 of
      Schedule 4 are true and accurate at the date of this Agreement.

22.3  The Purchasers shall not be entitled to claim that any fact causes any of
      the Warranties to be breached or renders any of the Warranties misleading
      if it has been fairly disclosed in reasonable detail to the Purchasers in
      the Disclosure Letter. For the avoidance of doubt:

      (a)   if a document is referred to in the Disclosure Letter but a copy of
            such document is not included in the Disclosure Documents, the
            contents of such document will not be deemed to have been fairly
            disclosed to the Purchasers; and

      (b)   if a document is referred to in the Disclosure Letter but a partial,
            rather than a complete, copy of such document is not included in the
            disclosure Documents then the relevant document shall only be deemed
            disclosed to the Purchaser to the extent actually included in the
            Disclosure Letter.


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22.4  Thales acknowledges that the Purchasers have entered into this Agreement
      in reliance upon the Warranties.

22.5  Each of the Warranties shall be separate and independent and, save as
      expressly provided to the contrary, shall not be limited or restricted by
      reference to or inference from any other Warranty.

22.6  Each of the Warranties shall be given on the date of this Agreement and
      shall be deemed to be repeated on the Completion Date except for the
      Warranty set out at paragraph 4.3 of Part I of Schedule 4. The Warranties
      deemed repeated at Completion shall be made on the basis that at
      Completion any reference to "the date of this Agreement", whether express
      or implied, in the Warranties or in any of the definitions in Clause 1.1
      (Definitions and Interpretation) and used in such Warranties (except in
      the definition of the "Disclosure Letter") shall be deemed to be
      substituted by a reference to the Completion Date. Notwithstanding that
      the Warranties set out at paragraphs 3.1, 3.2, 3.8, 3.9, 3.11, 3.12(a),
      7.1 and 11.3 of Part I of Schedule 4 shall be deemed repeated at
      Completion, the Purchasers shall not be entitled to claim that any fact
      arising between the date of this Agreement causes any such Warranties not
      to be true or accurate if it has been fairly disclosed in reasonable
      detail to the Purchasers in the Completion Disclosure Letter.

22.7  Thales will deliver to the Purchasers immediately before Completion a
      letter (the "Completion Disclosure Letter") confirming that the Warranties
      are true and accurate as at the Completion Date (as if repeated as
      described in sub-Clause 22.6) except as regards any matter or event
      occurring between the date of this Agreement and the Completion Date fair
      and reasonable details of which are set out in the Completion Disclosure
      Letter to the intent that such confirmations shall confer the same rights
      on the Purchasers as if each was set out in this Agreement as a Warranty.
      The Completion Disclosure


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      Letter shall not effect the right of the Purchasers to place reliance on
      the Warranties, except as provided in Clause 22.6.

22.8  Thales hereby undertakes to disclose promptly to Nice in writing
      immediately upon becoming aware of any matter, event or circumstance which
      may arise or becomes known to it after the date of this Agreement and
      before, or at the time of Completion which would or may make any of the
      Warranties inaccurate and would accordingly constitute a breach of the
      relevant Warranty.

      If, details of any matter disclosed in the Completion Disclosure Letter
      results in the Warranties, in the absence of such disclosure, not being
      true and accurate at Completion, then Thales acknowledges and agrees that
      the Purchasers shall be entitled to take action and to recover damages to
      the same extent which they would have been entitled had such disclosure
      not been made by Thales in the Completion Disclosure Letter (or otherwise)
      prior to Completion, except as provided in Clause 22.6.

22.9  The Purchasers shall not be entitled to recover more than once in respect
      of any one matter or set of circumstances giving rise to a claim under the
      Warranties and/or any indemnity and/or under any other provision of this
      Agreement. No claim for loss of profits will be recoverable for breach of
      Clause 5.3 or either Warranty 8.1 or 8.5 where the relevant claim would
      fall within the scope of the indemnities in Clauses 11.1, 11.2, 11.3 and
      11.4 but for the exceptions provided therein.

22.10 The benefit of the Warranties and all other rights of the Purchasers
      hereunder may be assigned in whole or in part, but always subject to the
      limitations on liability contained in this Clause 22, and without
      restriction by the Purchasers to any company which is a member of the
      Purchasers' Group and which succeeds in title to any of the businesses, in
      whole or in part, comprised in the Business. Provided that the benefit of
      the Warranties and all other rights assigned pursuant to this clause shall
      cease to have


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        effect and shall no longer be enforceable against Thales and/or any
        Thales Affiliate in the event that the assignee ceases to be a member of
        the Purchasers' Group.

22.11   In the event of the Purchasers becoming aware of any matter which may
        involve Thales in liability pursuant to the Warranties or the
        indemnities in Clauses 6 (Excluded Liabilities), 11 (Indemnities) and 14
        (Employment), and such matter is not a Third Party Claim (as defined in
        Clause 22.18) then the Purchasers shall procure that notice thereof
        (stating in reasonable details the nature of the claim and so far as
        practicable, the amount claimed) is provided to Thales within forty-five
        (45) days of the Purchasers becoming aware of the relevant matter, but
        any failure to give such notice or particulars shall not affect the
        rights of the Purchasers except that Thales shall not be liable in
        respect of any such claim to the extent that any liability of Thales is
        increased or Thales is otherwise prejudiced by such failure.

22.12   No claim shall be brought against Thales in respect of any breach of the
        Warranties or the indemnities set out in Clause 11 (other than the
        indemnities at Clauses 11.4, 11.5 and 11.6) unless Nice has given Thales
        written notice of the claim (stating in reasonable detail the nature of
        the claim and, so far as practicable, the amount claimed):

        22.12.1 in respect of any claim relating to Taxation, on or before the
                date which is 90 days from the last date on which any Tax
                Authority may make a claim or consent in or take any other step
                which may give rise to a claim relating to Taxation;

        22.12.2 in respect of any claim relating to any Intellectual Property
                Rights (other than a claim in respect of Wordnet 3 under clause
                11.3 or under the Warranties) matters, on or before the fourth
                anniversary of the Completion Date;


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        22.12.3 in respect of any claim relating to Wordnet 3 under clause 11.3
                or under the Warranties, on or before the third anniversary of
                the Completion Date;

        22.12.4 in respect of any claim relating to any other matters on or
                before the date which is two (2) years after the Completion
                Date.

22.13   The aggregate amount of the liability of Thales under:

        (a)     the Warranties;

        (b)     the indemnity in relation to the Prism Product at Clause 11.1;

        (c)     the indemnity in relation to Business IPR at Clause 11.2;

        (d)     the indemnity in relation to Wordnet 3 at clause 11.3; and

        (e)     the provisions of this Agreement in relation to the performance
                of warranty work at Clause 17;

        shall not exceed the aggregate of 60% (sixty per cent) of the aggregate
        of the Initial Cash Consideration (as defined in Clause 7.2.1) together
        with any further cash consideration received by Thales or the Companies
        as at the date of the relevant claim less any amount paid by Thales to
        the Purchasers by way of reduction of the consideration pursuant to
        Clauses 7.5, 7.7 and 13 provided that Thales' liability under Clause
        11.3 (or warranty 8.5 relating to


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      Wordnet 3) shall be limited to $12,500,000. For the avoidance of doubt,
      the provisions of this Clause 22.13 shall not affect or limit the
      liability of Thales in relation to any claim relating to the indemnities
      and/or provisions of this Agreement in respect of Clause 11.5 (SMRC),
      Clause 11.6 (NMS), Clause 11.7 (Tax), Clause 15 (Accounts Receivable),
      Clause 16 (Inventory), Clause 18 (the Instem Manufacturing Agreement),
      Clause 6 (the Excluded Liabilities) and any other provision of this
      Agreement.

22.14 No liability shall attach to Thales in respect of any individual claim
      under the Warranties, the indemnity relating to the Prism Product at
      Clause 11.1, the indemnity relating to Business IPR at Clause 11.2 or the
      indemnity relating to Wordnet 3 at Clause 11.3 for which it would, in the
      absence of this provision, be liable, unless such claim exceeds
      (pound)15,000 (fifteen thousand pounds). For the avoidance of doubt, the
      provisions of this Clause 22.14 shall not affect or limit the liability of
      Thales in relation to any claims made by the Purchasers relating to the
      indemnities and/or the provisions of this Agreement relating to Clause
      11.5 (SMRC), Clause 11.6 (NMS), Clause 11.7 (Tax), Clause 17 (warranty
      work), Clause 15 (Accounts Receivable), Clause 16 (Inventory), Clause 18
      (the Instem Manufacturing Agreement) Clause 6 (the Excluded Liabilities)
      and any other provisions of this Agreement.

22.15 The Purchasers shall not be entitled to damages in respect of any claim or
      claims under any of the Warranties, the indemnity relating to the Prism
      Product at Clause 11.1 or the indemnity relating to Business IPR at Clause
      11.2 and Wordnet 3 at Clause 11.3 unless and until the aggregate amount of
      all claims exceeds $600,000 (six hundred thousand dollars), but if this
      amount is exceeded, Thales' liability shall be for the total amount of the
      claims and shall not be limited to the excess. For the avoidance of doubt,
      the provisions of this Clause 22.15 shall not affect or limit the
      liability of Thales in relation to any claims made by the Purchasers
      relating to the indemnities and/or the provisions of this Agreement
      relating to Clause 11.5 (SMRC), Clause 11.6 (NMS), Clause 11.7 (Tax),
      Clause 17 (warranty work), Clause 15 (Accounts Receivable), Clause 16
      (Inventory), Clause 18 (the


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      Instem Manufacturing Agreement), Clause 6 (the Excluded Liabilities) and
      any other provisions of this Agreement.

22.16 None of the limitations contained in clauses 22.12, 22.13 and 22.14 and
      22.15 shall apply to any breach of any Warranty or indemnity which (or the
      delay in discovery of which) is the consequence of fraud, by any member of
      the Thales Group or any officer or employee of any member of the Thales
      Group. None of the limitations contained in clauses 22.3, 22.12, 22.13,
      22.14, 22.15 and 22.22 shall apply to any breach of warranty 2.7 (Accounts
      Combination Statement).

22.17 In the following provisions of this clause 22, the expression "Indemnified
      Party" means any of the Purchasers or any member of the Purchasers' Group
      or Thales or any member of the Thales Group, as the case may be, who has
      any claim under Clauses 3.2 (Hedge End), 6.1 (Assumed Liabilities), 6.3
      (Excluded Liabilities), 14 (Employment), 11 (Indemnities), or 25.2
      (Pensions) or under the Warranties and the expression "Indemnifying Party"
      means Thales or (or other relevant member of the Thales Group) or any
      Purchaser (or other relevant member of the Purchasers' Group) as the case
      may be.

22.18 If an Indemnified Party becomes aware of any matter, act, omission or
      circumstances that may give rise to a claim against the Indemnifying Party
      and the claim in question is a result of or in connection with a claim by
      or liability to a third party ("Third Party Claim") then the Indemnified
      Party shall procure that notice of such Third Party Claim is given as soon
      as reasonably practicable and in any event within twenty one (21) days to
      the Indemnifying Party, and the Indemnified Party shall provide to the
      Indemnifying Party sufficient information as may reasonably be required to
      assess the validity of the claim in question, but any failure to give such
      notice or provide such information shall not affect the rights of the
      relevant Indemnified Party except that the Indemnifying party shall not be
      liable to the Indemnified Party in


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      respect of a Third Party Claim to the extent that any liability of the
      Indemnifying Party is increased or the Indemnifying Party is otherwise
      prejudiced by such failure.

22.19 If the Indemnifying Party agrees that it is liable to the Indemnified
      Party in respect of the claim in question (to the extent the Third Party
      Claim is successful) and the Indemnifying Party indemnifies and secures
      the Indemnified Party against all reasonable out-of-pocket costs and
      expenses incurred by it, and any loss arising in respect of the relevant
      claim under this Agreement as finally determined, within 10 Business Days
      of being notified of the Third Party Claim, the Indemnified Party and any
      member of its group shall, subject to clauses 22.20 and 22.21:

      (a)   take such action as the Indemnifying Party may reasonably require
            after consultation with the Indemnified Party to avoid, resist,
            contest or compromise such Third Party Claim or matter which gives,
            or may give, rise to such a claim;

      (b)   not make any admission of liability, agreement, compromise or
            settlement with any person, body or authority nor consent to the
            entry of any judgment or final order in relation to any such Third
            Party Claim except with prior consultation with, and the prior
            agreement (not to be unreasonably withheld or delayed) of, the
            Indemnifying Party;

      (c)   if so required by the Indemnifying Party ensure (or, as appropriate,
            shall procure that each Indemnified Party shall ensure) that the
            Indemnifying Party is placed in a position to take on or take over,
            in any such case in the name and on behalf of, the Indemnified Party
            (or any


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            member of its group concerned), the conduct of all proceedings
            and/or negotiations of whatever nature arising in connection with
            the Third Party Claim in question, including the appointment of
            solicitors or other professional advisers, and provide (or, as
            appropriate, procure that each Indemnified Party provides) such
            information, original or copy documents, access to systems and/or
            personnel and assistance as the Indemnifying Party may reasonably
            require in connection with the preparation for, and conduct of, such
            proceedings and/or negotiations provided that the Indemnifying Party
            shall keep the Indemnified Party informed of the progress of any
            proceedings and shall consult with the Indemnified Party prior to
            taking any action which may materially and adversely affect the
            Indemnified Party or the Business. If the Indemnified Party decides
            to retain solicitors or other professional advisers in addition to
            those retained by the Indemnifying Party, it shall do so at its own
            cost.

      (d)   If the Indemnifying Party does not take over the management of the
            claim, then the Indemnified Party shall consult the Indemnifying
            Party on the conduct of the claim and keep the Indemnifying Party
            fully and regularly informed of all proceedings and/or negotiations
            and of any financial sums which will be claimed under the indemnity
            and will only compromise, settle, discharge or otherwise dispose of
            the claim with the prior written consent of the Indemnifying Party
            (such consent not to be unreasonably withheld or delayed).

22.20 The Indemnified Party shall not take any step to admit, compromise,
      settle, discharge or otherwise deal with any Third Party Claim at any time
      prior to notification of such Third Party Claim to the Indemnifying Party
      or pending


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      the Indemnifying Party's consideration of the Third Party Claim. Provided
      that the Indemnified Party has complied with its obligations under this
      Clause and Clauses 22.17 and 22.18, the Indemnified Party shall be at
      liberty, without reference to the Indemnifying Party and without prejudice
      to its rights against the Indemnifying Party, to admit, compromise,
      settle, discharge or otherwise deal with any Third Party Claim:

      (a)   if the Indemnifying Party fails to request the Indemnified Party to
            take any appropriate action within a reasonable period after receipt
            of the notice given under clause 22.18 above; or

      (b)   if no response is received from the Indemnifying Party within a
            reasonable period in relation to any continuing dispute, negotiation
            or correspondence; or

      (c)   if the Indemnifying Party fails to secure and indemnify the
            Indemnified Party as required by clause 22.19 above.

22.21 The Indemnified Party and any member of its group shall be at liberty,
      without prejudice to its rights against the Indemnifying Party, to admit,
      compromise, settle, discharge or otherwise deal with any Third Party Claim
      if the Third Party Claim relates to any Intellectual Property Rights and
      such claim could materially and adversely affect the Business including,
      for the avoidance of doubt, the ongoing financial performance of the
      Business, provided that the Indemnified Party shall keep the Indemnifying
      Party informed of the progress of any proceedings and shall consult with
      the Indemnified Party prior to compromising, settling, discharging or
      otherwise dealing with such a Third Party Claim.


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22.22   No liability shall attach to Thales in respect of any claim under the
        Warranties and/or the indemnities set out in Clause 11:

        22.22.1 to the extent that the matter, event or circumstance giving rise
                to the relevant claim was provided for in the Completion Balance
                Sheet;

        22.22.2 unless proceedings in respect of the claim shall have been
                issued and served on Thales before the date nine months
                following the date on which notice of the claim was given to
                Thales in accordance with Clause 22.12;

        22.22.3 to the extent that the claim or breach would not have arisen but
                for some act, omission, transaction or arrangement whatsoever
                carried out at the written request or with the written approval
                of Nice or its authorised representatives prior to Completion or
                which was expressly authorised by this Agreement; and

        22.22.4 to the extent that the matter giving rise to the claim would not
                have arisen but for the passing of, or any change in, after the
                date of this Agreement, any law, rule, regulation,
                interpretation of law or administrative practice of any
                government, governmental department, agency or regulatory body
                or any increase in the rates of Tax or any imposition of Tax, in
                any case not actually or prospectively in force at the date of
                this Agreement.

22.23   The Purchasers shall, in relation to any loss or liability which might
        give rise to a claim under:

        (a)     the Warranties; or


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        (b)     any Third Party Claim which relates to Intellectual Property
                Rights in relation to which Nice have exercised their rights
                under Clause 22.21 to take conduct of such claim and the
                indemnities contained in clauses 11.1, 11.2, 11.5 and 11.6,

        take all reasonable steps to avoid or mitigate such loss or liability.

22.24   Thales undertakes that if any claim is made against it or any of the
        other members of the Thales Group in connection with the sale of the
        Assets or the Cliffstone Shares or the Cliffstone Note to the
        Purchasers, none of them will make any claim against any Employee on
        whom it may have relied before agreeing to the terms of this Agreement
        or authorising any statement in the Disclosure Letter.

22.25   Thales expressly disclaims all liability and responsibility for any
        forecast, business projection or evaluation contained within or derived
        or capable of being derived from:

        22.25.1 any investigation carried out or made by or on behalf of the
                Purchasers in the course of due diligence or other enquiry prior
                to the Purchasers entering into this Agreement; or

        22.25.2 any other data, document, record or information Disclosed.

22.26   No liability shall attach to Thales in respect of any claim under the
        Warranties to the extent that the relevant facts, matters or
        circumstances giving rise to the claim were actually known by the
        Purchasers to constitute a breach of Warranty.


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23      RESTRICTIONS ON THALES ACTIVITIES

23.1    Thales undertakes with the Purchasers that without the written consent
        of Nice it will not and shall procure that each Affiliate of Thales
        shall not, either on its own account or in conjunction with or on behalf
        of any other person:

        23.1.1  for a period of three (3) years from the Completion Date carry
                on or be engaged, concerned or interested, directly or
                indirectly, whether as a partner, shareholder, director,
                consultant, agent or otherwise in any business which is
                competitive with the Business as such business is carried on at
                Completion;

        23.1.2  for a period of 18 (eighteen) months from the Completion Date
                entice away or attempt to solicit or entice away from the
                Purchasers any Employee who is a senior employee of the
                Business, whether or not such person would commit a breach of
                his contract by reason of leaving such employment.;

        23.1.3  for a period of three years from the Completion Date solicit or
                endeavour to entice away from the Purchasers the business or
                custom of a Restricted Customer with a view to providing goods
                or services to that Restricted Customer in competition with the
                Business as carried on at the Completion Date;

        23.1.4  for a period of three years from the Completion Date provide
                goods or services to or otherwise have any business dealings
                with any Restricted Customer in the


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                course of any business concern which is in competition with the
                Business as carried on at the Completion Date;

        23.1.5  for a period of three years from the Completion Date to the
                detriment of any of the Purchasers, persuade or endeavour to
                persuade any Restricted Supplier to cease doing business or
                materially reduce its business with any of the Purchasers;

        23.1.6  for a period of three years from the Completion Date to the
                detriment of any of the Purchasers, receive goods or services
                from or otherwise have any business dealings with any Restricted
                Supplier in the course of any business concern which is in
                competition with the Business as carried on at the date hereof;
                and

        23.1.7  assist any other person to do any of the foregoing things.

23.2    While the restrictions contained in this Clause 23 are considered by the
        parties to be reasonable in all the circumstances, it is recognised that
        restrictions of the nature in question may fail for technical reasons
        and accordingly it is agreed and declared that if any of such
        restrictions shall be adjudged to be void as going beyond what is
        reasonable in all the circumstances for the protection of the legitimate
        business interests of the Purchasers but would be valid if part of the
        wording was deleted or the periods reduced or the range of activities or
        area dealt with reduced in scope, the said restriction shall apply with
        such modifications as may be necessary to make it valid and effective.

23.3    Nothing in Clause 23.1 shall prevent Thales or any Affiliate of Thales
        from:


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        23.3.1  acquiring after Completion, a company or business (a "Relevant
                Transaction"), which carries on the business of the design,
                development, production, marketing and supply of various secure
                voice recording and replay systems and products or application
                software for customer performance management solutions in either
                contact centres, public safety or wholesale trading platforms
                and the provision of related ancillary services (a "Relevant
                Business") (and the provisions of Clause 23.1.1 shall not apply
                to any such company or business) provided that the acquisition
                of the company or business carrying on the Relevant Business is
                an incidental part of the Relevant Transaction. For the
                avoidance of doubt if the aggregate sales of the company or
                business carrying on the Relevant Business is above 10 per cent.
                of the aggregate sales of all the companies or businesses
                acquired pursuant to the Relevant Transaction, or, if the annual
                turnover of the company or business carrying on the Relevant
                Business is in excess of $20 million, the company or business
                carrying on the Relevant Business shall not be regarded as
                incidental; and

        23.3.2  the acquisition of shares or convertible debentures of a company
                listed on any recognised stock exchange market which is
                significantly (i.e. more than 10% of total sales) engaged in a
                business competitive with the Business, provided that Thales or
                any Affiliate of Thales in aggregate does not acquire directly
                or indirectly shares or convertible debentures which constitute
                or can be constituted to consist more than 5 per cent of the
                share capital of such company.


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23.4  In the event that Thales, pursuant to Clause 23.1, is permitted to acquire
      a Relevant Business Thales undertakes to inform Nice of such acquisition,
      in writing, in reasonable detail, within two weeks of the completion of
      the Relevant Transaction. Nice shall then have a period of 90 days from
      the date of receipt of the notice of Thales, to serve a notice of its wish
      to purchase the company or business carrying on the Relevant Business. The
      parties agree to negotiate in good faith to conclude the sale of the
      company or business carrying on the Relevant Business within 3 months from
      the date of Nice's notice stating its desire to purchase such company or
      business.

24    USE OF CORPORATE NAMES

      The Purchasers undertake that they shall not, and will procure that the
      members of the Purchasers' Group shall not, make use of the Excluded Trade
      Marks at any time after the Completion Date, save only that the Purchasers
      shall be entitled from the Completion Date in connection with the
      Business:

      (a)   for a period of 6 months to use up existing stocks of trade
            literature, labels, manuals, packaging and other printed material
            bearing any of the Excluded Trade Marks or any part thereof;

      (b)   for a period of 3 months to continue to display any of the Excluded
            Trade Marks or any part thereof as it appears on any existing
            nameplate, building sign or vehicle;

      (c)   for a period of 6 months to cover or remove any of the Excluded
            Trade Marks or any part thereof from any existing stocks of
            products;


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      provided that any goodwill derived from use of the Excluded Trade Marks by
      the Purchasers' or members of the Purchasers' Group pursuant to this
      Clause 24 shall accrue to Thales.

25    PENSIONS

25.1  Each of Thales and the Purchasers shall comply, or shall procure
      compliance with Schedule 6 (Pensions).

25.2  Thales shall indemnify and keep indemnified the Purchasers (for themselves
      and as trustee for any other member of the Purchasers' Group) on demand
      against any liabilities, claims, actions or proceedings which may be
      suffered or incurred by, or made against the Purchasers or any other
      member of the Purchasers' Group (including without limitation all legal
      and other professional fees and expenses incurred) arising in connection
      with or as a consequence of the provision of retirement benefits
      (contractual or otherwise) for and in respect of the Non-UK Employees and
      their dependants in respect of or attributable to any period prior to
      Completion.

26    CONFIDENTIALITY OF INFORMATION

26.1  Each party undertakes to the other that it shall and shall procure that
      all members of its Group shall treat as strictly confidential all
      information received or obtained by it or its employees, agents or
      advisers as a result of entering into or performing this Agreement
      including information relating to the provisions of this Agreement, the
      negotiations relating to this Agreement, the subject matter of this
      Agreement or the business or affairs of the other and subject to the
      provisions of Clause 26.2 that it will not at any time hereafter make use
      of or disclose or divulge to any person such information and shall use all
      reasonable endeavours to prevent the publication or disclosure of any such
      information.


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26.2  The restrictions contained in Clause 26.1 or 26.3 shall not apply so as to
      prevent any party, Thales or the Companies from making any disclosure
      required by law or for the purpose of any judicial proceedings or by any
      securities exchange or supervisory or regulatory or governmental body
      pursuant to rules to which it is subject wherever situated or from making
      any disclosure to any professional adviser, auditors and bankers for the
      purposes of obtaining advice (provided always that the provisions of this
      Clause 26 shall apply to, and such party shall procure that they apply to
      and are observed in relation to, the use or disclosure by such
      professional adviser of the information provided to him) nor shall the
      restrictions apply in respect of any information which comes into the
      public domain otherwise than by a breach of this Clause 26.

26.3  Thales undertakes at all times after the Completion Date not to disclose
      to any other person or use any Business Information which is not in the
      public domain.

26.4  The restrictions contained in this Clause 26 shall continue to apply after
      the termination of this Agreement without limit in time.

27    CORPORATE GOVERNANCE, LOCK-UP, ORDERLY MARKETING ARRANGEMENTS, STANDSTILL
      AGREEMENT AND REGISTRATION RIGHTS AGREEMENT

27.1  The rights and obligations of Thales and Nice with respect to the
      registration under the Securities Act, of the Nice Shares issued to Thales
      as the Share Consideration in accordance with Clause 7.2.2 are set forth
      in the Registration Rights Agreement attached hereto as Schedule 11.


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<PAGE>

27.2  The rights and obligations of Thales and Nice with respect to the
      corporate governance of Nice and restrictions on the trading of Nice
      Shares by Thales are set forth in Schedule 11.

27.3  Thales has also agreed to be bound by the terms and conditions of a stand
      still agreement substantially in the form of Schedule 11 hereto.

28    NOTICES

28.1  All notices and other communications relating to this Agreement:

      28.1.1 shall be in English and in writing;

      28.1.2 shall be delivered by hand or sent by facsimile;

      28.1.3 shall be delivered or sent to the party concerned at the relevant
             address or number, as appropriate, and marked as shown in Clause
             28.2, subject to such amendments as may be notified from time to
             time in accordance with this Clause 28 by the relevant party to the
             other party. That notice shall only be effective on the date
             falling 5 clear Business Days after the notification has been
             received or such later date as may be specified in the notice;

      28.1.4 Any notice given under this Agreement shall, in the absence of
             earlier receipt, be deemed to have been duly given as follows:

            (a)   if delivered personally, on delivery;


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      (b)   if sent by facsimile, when dispatched provided a valid transmission
            acknowledgement is obtained from the addressees' facsimile machine
            appears correctly at the start and end of the sender's fax.

28.2  The initial details for the purposes of Clause 28 are:

      Thales SA
      173 Boulevard Haussmann
      75415 Paris Cedex 08
      France
      Facsimile n(degree) 00 33 1 53 77 82 63
      For the attention of Pierre CHARRETON
                           Thales Group General Counsel

      The Purchasers
      Nice Systems
      8 Hapnina Street
      Raanana, 43107
      Israel
      facsimile n(degree)972 9775 3520
      for the attention of: Koby Huberman

28.3  Any notice given under this Agreement outside normal working hours in the
      place to which it is addressed shall be deemed not to have been given
      until the start of the next period of normal working hours in such place.


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28.4  No notice under this Agreement may be withdrawn or revoked except by
      notice given in accordance with this Clause 28.

28.5  The provisions of this Clause 28 shall not apply in relation to the
      service of Service Documents

29    ANNOUNCEMENTS

29.1  The parties mutually agree to take all reasonable care to avoid any act
      which may reflect adversely on or be harmful to the business reputation or
      prestige of the other and without prejudice to the generality of the
      foregoing agree that (save as required by law or stock exchange
      regulations) any press announcements or circular letters which may be made
      or sent out by the Thales Group or the Purchasers and any other
      disclosures relating to this Agreement or its subject matter shall be
      subject to the prior written approval of Thales and Nice, such approvals
      not to be unreasonably withheld or delayed and may be given either
      generally or in a specific case or cases and may be subject to conditions.

29.2  The restrictions contained in this Clause 29 shall continue to apply after
      termination of this Agreement without limit in time.

30    ENTIRE AGREEMENT

30.1  This Agreement (together with the documents referred to herein) represent
      the entire agreement between the parties in relation to the subject matter
      of this Agreement and supersedes any previous agreement whether written or
      oral between the parties in relation to the subject matter. Accordingly,
      all other terms, conditions, representations, warranties and other
      statements


                                      128
<PAGE>

      which would otherwise be implied (by law or otherwise) shall not form part
      of this Agreement.

30.2  Each of the parties acknowledges and agrees that this clause 30 shall not
      apply to any statement, representation or warranty made fraudulently or to
      any provision of this Agreement which was induced by, or otherwise entered
      into as a result of, fraud, for which the remedies shall be all those
      available under the law governing this Agreement.

31    COSTS

      Each party shall be responsible for all the costs and expenses incurred by
      it in connection with and incidental to the preparation and completion of
      this Agreement, the other documents referred to in this Agreement and the
      sale and purchase of the Business and Assets.

32    AMENDMENTS AND WAIVERS

32.1  No amendment or variation of the terms of this Agreement shall be
      effective unless it shall be made or confirmed in a written document
      signed by both Nice and Thales.

32.2  No delay in exercising or non-exercise by either party of its rights under
      or in connection with this Agreement shall operate as a waiver or release
      of that right. Rather, any such waiver or release must be specifically
      granted in writing signed by the party granting it.

33    SEVERABILITY


                                      129
<PAGE>

      If at any time any part of any provision of this Agreement shall be or
      become illegal, invalid or unenforceable in any respect under the law of
      any jurisdiction, then such provision shall be deemed to be severed from
      this Agreement and the remainder of the provisions of this Agreement shall
      remain valid and enforceable.

34    ASSIGNMENT

34.1  Save as otherwise provided, no party may assign any of its rights under
      this Agreement without the prior written consent of the others.

34.2  The parties agree that the benefits of this Agreement may be assigned (in
      whole or in part) by the Purchasers to, and may be enforced by, any member
      of the Purchasers' Group (an "Assignee"), which is the legal owner of the
      Business or Assets (save as provided in Clause 34.3) as if it were the
      relevant Purchaser under this Agreement.

34.3  Where the Purchasers or any member of the Purchasers' Group cease to hold
      at least 50% (fifty per cent.) of the entire issued share capital of an
      Assignee, the Purchasers shall procure that before they so cease, they
      shall assign the benefit of their rights under this Agreement to another
      continuing member of the Purchasers' Group.

35    CONTINUING EFFECT

      Each provision of this Agreement and any other documents referred to in it
      which is capable of being performed after but which has not been performed
      at or before Completion and all Warranties, indemnities, covenants and
      other undertakings and obligations contained in or entered into in
      accordance with


                                      130
<PAGE>

      this Agreement shall continue in full force and effect after Completion
      notwithstanding Completion.

36    COUNTERPARTS

      This Agreement may be entered into in any number of counterparts and by
      the parties to it on separate counterparts but shall not be effective
      until each party has executed at least one counterpart, each if which when
      so executed and delivered shall be an original, but all counterparts
      together shall constitute one and the same instrument.

37    GOVERNING LAW

      This Agreement shall be governed by and construed in accordance with
      English law and the parties submit to the non-exclusive jurisdiction of
      the English Courts in relation to any claim or matter arising out of this
      Agreement.

38    CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

      No person, who is not a party to any contract incorporating these
      conditions, shall have any rights under the Contracts (Rights of Third
      Parties) Act 1999 to enforce any term of that contract.

39    AGENT FOR SERVICE

39.1  Thales irrevocably appoints Thales Corporate Services Limited of 2
      Dashwood Lang Road, Bourne Business Park, Addlestone, Surrey KT15 2NE to
      be its agent for the receipt of Service Documents. It agrees that any


                                      131
<PAGE>

      Service Document may be effectively served on it in connection with
      proceedings in England and Wales by service on its agent effected in any
      manner permitted by the Civil Procedure Rules.

      39.1.1 If the agent at any time ceases for any reason to act as such,
            Thales shall appoint a replacement agent having an address for
            service in England or Wales and shall notify the other Purchasers of
            the name and address of the replacement agent. Failing such
            appointment and notification, the Purchasers shall be entitled by
            notice to Thales to appoint a replacement agent to act on behalf of
            Thales. The provisions of this Clause 39 applying to service on an
            agent apply equally to service on a replacement agent.

      39.1.2 A copy of any Service Document served on an agent shall be sent by
            post to Thales. Failure or delay in so doing shall not prejudice the
            effectiveness of service of the Service Document.

39.2  Nice irrevocably appoints Nice CTI Systems UK Limited of 8 The Square,
      Stockley Park, Uxbridge, Middlesex UB11 1FW to be its agent for the
      receipt of Service Documents. It agrees that any Service Document may be
      effectively served on it in connection with proceedings in England and
      Wales by service on its agent effected in any manner permitted by the
      Civil Procedure Rules.

      39.2.1 If the agent at any time ceases for any reason to act as such, Nice
             shall appoint a replacement agent having an address for service in
             England or Wales and shall notify the other Purchasers of the name
             and address of the replacement agent. Failing such appointment and


                                      132
<PAGE>

                notification, the Purchasers shall be entitled by notice to Nice
                to appoint a replacement agent to act on behalf of Nice. The
                provisions of this Clause 39 applying to service on an agent
                apply equally to service on a replacement agent.

        39.2.2  A copy of any Service Document served on an agent shall be sent
                by post to Nice. Failure or delay in so doing shall not
                prejudice the effectiveness of service of the Service Document.

39.3    "Service Document" means, for the purposes of this Clause 39 a claim
        form, application notice, order, judgment or other document relating to
        any proceedings.

40      Gross Payments

        If any amount payable to the Purchasers by Thales or by the Purchasers
        to Thales:

        (a)     in respect of or in connection with any Warranty being breached,
                untrue or misleading or any indemnity or undertaking; or

        (b)     under any other clause of this Agreement;

        is subject to Taxation, such additional amounts shall be paid to the
        Purchasers by Thales or by the Purchasers to Thales so as to ensure that
        the net amount received by the Purchasers or Thales is equal to the
        amount


                                      133
<PAGE>

      the Purchasers or Thales should have received had the payment not been so
      subject to Taxation.

41    Guarantee

      In consideration of Thales entering into this Agreement, Nice hereby
      unconditionally and irrevocably guarantees to Thales and to the Companies
      the performance by the Purchasers of their obligations under this
      Agreement and the payment of any liability of the Purchasers under this
      Agreement.

      EXECUTION

      The parties have shown their acceptance of the terms of this Agreement by
      executing it at the end of the Schedules.


                                      134
<PAGE>

     ATTESTATIONS

     Signed by                                 )
        /s/                                    )
     for and on behalf of                      )
     THALES SA                                 )
     in the presence of:                       )

     Signed by                                 )
         /s/                                   )
     for and on behalf of                      )
     Nice cti systems uk limited               )
     in the presence of:                       )

     Signed by                                 )
         /s/                                   )
     for and on behalf of                      )
     Nice systems sarl                         )
     in the presence of:                       )

     Signed by                                 )
        /s/                                    )
     for and on behalf of                      )
     NICE SYSTEMS GMBH                         )
     in the presence of:                       )

     Signed by                                 )
        /s/                                    )
     for and on behalf of                      )
     Nice systems inc.                         )
     in the presence of:                       )

     Signed by                                 )
        /s/                                    )
     for and on behalf of                      )
     NICE SYSTEMS Ltd                          )
     in the presence of:                       )

<PAGE>

                                                           EXHIBIT 4.3 SCHEDULES

                                   SCHEDULE 1

                                  THE COMPANIES

THALES CONTACT SOLUTIONS LIMITED

Place of Incorporation          :         England and Wales

Registered Number               :         560700

Registered Office               :         Western Road, Bracknell,
                                          Berkshire RG12 1RG
                                          England

THALES CONTACT SOLUTIONS S.A.

Place of Incorporation          :         France

Registered Number               :         B424442135 Versailles

Registered Office               :         18 avenue Dutartre
                                          78150 Le Chesnay
                                          France

THALES CONTACT SOLUTIONS INC.

Place of Incorporation          :          U.S.A. (Delaware)

Registered Number               :

Registered Office               :         480 Spring Park Place
                                          Suite 1000
                                          Herndon VA20170
                                          USA

THALES CONTACT SOLUTIONS GMBH

Place of Incorporation          :         Germany

Registered Number               :         HRB5492 Bergisch Gladbach

Registered Office               :         Technologie Park Bergisch Gladbach
                                          Friedrich-Ebert Strasse
                                          D-51429
                                          Bergisch Gladbach
                                          Germany

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<PAGE>

                                   SCHEDULE 2

                                  APPORTIONMENT



The Purchase Price will be allocated on a fair and reasonable basis on the
Completion Date and thereafter as follows:

     o    Intellectual Property is allocated a value of US$4,000,000 (four
          million dollars).

     o    The net tangible assets of the Business as at the Completion Date of
          each of TCSL, TCS Inc., TCSA, TCS GmbH shall be allocated at fair
          market value in US Dollars in each case based on the Conversion Rate
          on the Completion Date and the Initial Purchase Price allocated
          accordingly to each asset of the respective Thales selling entity.

     o    The CCTI stock will be valued at the nominal amount of US$1,000 (one
          thousand dollars).

     o    The CCTI Note will be valued at a nominal amount of US$1,000 (one
          thousand dollars).

     o    The remainder of the Initial Purchase Price and/or any adjustment
          thereto, shall be allocated to various intangible assets (Goodwill and
          Other Intangibles) and will be allocated 65% to the UK Purchaser and
          35% to the US Purchaser.

     o    The Earnout Consideration payable pursuant to Clause 7.8 of the
          Agreement will be allocated to Goodwill and will be allocated to and
          paid by Nice to:

                TCS Inc:                 85%

                Thales TRC Inc:          10%

                TCSL:                     5%


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<PAGE>

     o    Any other payments, including payments made in respect of warranties
          and/or indemnity claims, shall be treated in accordance with the then
          current generally accepted accounting principles.


     PAYMENT SHALL BE EFFECTED AS FOLLOWS:



     Item                        Seller                        Acquirer
     ----                        ------                        --------



     UK Business                 TCSL                          UK Purchaser

     French Business             TCSA                          French Purchaser

     German Business             TCS GmbH                      German Purchaser

     US Business                 TCS Inc.                      US Purchaser



     Business IPR                Thales Electronics PLC        Nice

     Cliffstone Shares           Thales TRC Inc.               UK Purchaser

     Cliffstone Note             Thales TRC Inc.               US Purchaser

     Earnout Consideration       TCS Inc.: 85%                 Nice: 100%

                                 Thales TRC Inc.: 10%

                                 TCSL: 5%



                                      123
<PAGE>

                                   SCHEDULE 3

                             THE BUSINESS PROPERTIES


PART 1 - LIST OF PROPERTIES

A - HEDGE END PROPERTY

     Tollbar Way
     Hedge End
     Southampton
     Hampshire
     SO30 2ZP


B - RELEVANT BUSINESS PROPERTIES

UNITED KINGDOM

     418/419,
     150 Minories
     London
     EC3N 1LS


UNITED STATES

1    480 Spring Park Place
     Suite 1000
     Herndon
     VA 20170

2    Part 35th Floor
     One Penn Plaza
     New York


FRANCE

1    18 avenue Dutartre
     78150 Le Chesnay
     France

2    14 Rue des Erables
     78150
     Rocquencourt
     France


                                      124
<PAGE>

GERMANY

1    Technologie Park Bergisch Gladbach
     Friedrich-Ebert Strasse
     D-51429 Bergisch Gladbach
     Germany

2    Buro Nr. 7
     Stock des Hauses Wittestr 30K
     13509
     Berlin


REPUBLIC OF IRELAND

     Arena House
     Arena Road
     Sandyford
     Dublin 18



THE NETHERLANDS

     Bedrijvencentrum Gadering
     Hoefsmidstraat
     319 4 AA Hoogvliet
     The Netherlands



SPAIN

     222, De La Calle Arturo Sonia
     Madrid
     Spain


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<PAGE>

PART 2 - HEDGE END PROPERTY SUBLEASE


1.     On or after Completion and subject to the provisions of the rest of this
       Schedule 3 Part 2 Thales shall procure the granting of by Thales
       Properties Limited and the Purchasers shall procure that the UK Purchaser
       shall take a sublease of the Hedge End Property in the agreed form
       subject to any variations or amendments agreed between the parties (both
       acting reasonably).


2.     Thales shall at its own expense use all reasonable endeavours to procure
       the written consent of the landlord and the superior landlord of the
       Hedge End Property (both hereinafter referred to as "the Hedge End
       Landlord") by deed to the granting of the sublease of the Hedge End
       Property referred to in paragraph 1 (the "Landlord's Consent") and will
       promptly make application for Landlord's Consent and will supply a copy
       of its application for Landlord's Consent to the UK Purchaser and will
       keep the UK Purchaser informed of progress with the application for
       Landlord's Consent.


3.     The UK Purchaser shall in connection with Thales' application for
       Landlord's Consent promptly supply such information including accounts
       and references and provide such assistance to Thales as may reasonably be
       required to ensure that Landlord's Consent can be obtained at the
       earliest practical date.


4.     The Purchasers shall in pursuance of the application for Landlord's
       consent procure that the UK Purchaser enters into direct covenants with
       the Hedge End Landlord in the form reasonably required by the Hedge End
       Landlord to pay the rents reserved by and observe and perform the
       covenants and conditions contained in the proposed sublease of the Hedge
       End Property and if reasonably so required the Purchasers will procure a
       guarantee from Nice for the purposes of Landlord's Consent (but for the
       avoidance of doubt no other or further guarantee or other form of
       security or payment) in respect of such obligations such guarantee to be
       in a form reasonably acceptable to the Hedge End Landlord.

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<PAGE>


5.     If the Hedge End Landlord refuses Landlord's Consent and the UK Purchaser
       wishes to remain in occupation of the Hedge End Property then:


5.1    Unless the UK Purchaser and Thales both agree that the Landlord is
       entitled to refuse consent, Thales shall procure that Thales Properties
       Limited will at the joint cost of Thales and of the UK Purchaser promptly
       apply to a court of competent jurisdiction for a declaration that the
       Landlord's Consent has been unreasonably refused and shall diligently
       pursue such proceedings and shall keep the UK Purchaser fully informed of
       its application to the court and of the court's decision and will not
       without the UK Purchaser's consent withdraw or settle such proceeding.


5.2    If the UK Purchaser and Thales are unable to agree whether the Landlord's
       Consent is being unreasonably refused then either party may at any time
       elect to refer the matter to a UK qualified barrister of not less than 10
       years' call and experience in property matters ("Counsel") for
       determination. The identity of such Counsel shall be agreed between the
       UK Purchaser and Thales both acting reasonably or in the absence of
       agreement as to the identity of Counsel the matter shall be referred by
       either party to the Chairman of the Bar Council or his duly appointed
       deputy who shall appoint Counsel to determine the issue. If Counsel's
       opinion is that there is a 50% or greater than 50% chance of success in
       an application for a declaration that the Landlord is unreasonably
       refusing consent then Thales shall procure that Thales Properties will
       apply to a court of competent jurisdiction for a declaration in
       accordance with the provisions of paragraph 5.1 above.

                                      127
<PAGE>

5.3    The fees of Counsel shall be shared equally between Thales and the UK
       Purchaser.


6.     The UK Purchaser shall be deemed to lease with full knowledge and notice
       in all respects of the actual state and condition of the Hedge End
       Property and shall take the same in that state and condition.


7.     Insofar as any of the obligations covenants or conditions relating to the
       Hedge End Property contained in this Agreement remain to be observed or
       performed this Agreement shall continue in full force and effect
       notwithstanding Completion.


8.     If Landlord's Consent has not been obtained on or before Completion the
       following provisions shall apply:


8.1    Thales and the Purchasers shall remain bound to each other in respect of
       the remaining provisions of this Agreement;


8.2    completion of the proposed sublease shall be postponed to the tenth
       Business Day after whichever is the later of:-


       8.2.1  receipt by Thales of Landlord's Consent;


       8.2.2  the provision of an engrossment of the agreed form of sublease for
              the Hedge End Property to the UK Purchaser or its solicitors; or


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<PAGE>

       8.2.3  grant of the Court Order referred to in paragraph 14.


9.1    If:


9.1.1  the Hedge End Landlord complains in writing about the occupation of the
       Hedge End Property by the UK Purchaser and requires the UK Purchaser to
       immediately vacate the Hedge End Property and threatens to take
       proceedings to recover possession of the Hedge End Property either party
       shall be entitled by giving at least 7 days' notice in writing to the
       other party (accompanied in the case of any notice served by Thales or
       Thales Properties by a copy of the Hedge End Landlord's letter requiring
       the UK Purchaser to vacate) at any time thereafter (but before Landlord's
       Consent is granted) electing to withdraw the Hedge End Property from this
       part of this Schedule of this Agreement; or


9.1.2  the UK Purchaser shall at any time prior to grant of Landlord's Consent
       serve at least 3 months' written notice of its desire to terminate this
       part of this Schedule to this Agreement; or


9.1.3  the Hedge End Landlord takes any steps to interfere with or prevent
       access to or use of the Hedge End Property by the UK Purchaser the UK
       Purchaser shall be entitled by giving at least one day's written notice
       to the other party to terminate this part of the Schedule of this
       Agreement.


       THEN upon expiry of the notice referred to in paragraph 9.1.1 9.1.2 or
       9.1.3 above (as appropriate) the provisions of this part 2 of Schedule 3
       of this Agreement shall cease and be of no further effect (but without
       prejudice to any antecedent breach of this Agreement) but the provisions
       of paragraph 9.2 shall apply.

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<PAGE>

9.2    Upon expiry of any notice served pursuant to paragraph 9.1.1 or 9.1.2 or
       9.1.3 above the following provisions shall apply:


9.2.1  Thales and the Purchasers shall be released from any obligation to
       complete the proposed sublease of the Hedge End Property (but without
       prejudice to any antecedent breach of this Agreement);


9.2.2  the Hedge End Property shall be promptly vacated and the UK Purchaser
       shall deliver it up with vacant possession to Thales in accordance with
       the terms of this Agreement and the UK Purchaser shall cease to be a
       licensee and shall as soon as reasonably practicable make good any damage
       caused by it or any of its licensees or visitors or agents to the Hedge
       End Property to Thales' reasonable satisfaction; and


9.2.3  the Purchasers shall forthwith remove any registration of this Agreement
       whether by way of caution or otherwise in any registers relating to the
       Hedge End Property.


10.    The following provisions of this paragraph shall apply in the case of the
       Hedge End Property with respect to the period from the date of Completion
       to whichever is the earlier of the date of the grant of the proposed
       sublease of the Hedge End Property and the date of exclusion of the Hedge
       End Property from this part of this Schedule of this Agreement under
       paragraph 9 (the relevant date being referred to in this paragraph and in
       paragraphs 11 and 13 below as "the End Date"):


10.1   the UK Purchaser shall enter the Hedge End Property and occupy it as
       licensee only according to the terms of this part of this Schedule of
       this Agreement;


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<PAGE>

10.2   from Completion to the End Date (both dates inclusive):


       10.2.1 the UK Purchaser shall be responsible for, and if necessary
              reimburse Thales against all rates water rates insurance service
              charges and other outgoings and also for all gas electricity and
              other services consumed at the Hedge End Property;


       10.2.2 the UK Purchaser shall pay to Thales Properties Limited an amount
              equal to the rent reserved and other payments payable under the
              proposed sublease of the Hedge End Property as and when the same
              fall due and shall observe and perform the covenants and
              conditions on the part of the tenant contained in the proposed
              sublease of the Hedge End Property (as far as consistent with a
              licence and so far as they are not inconsistent with the
              provisions of this Part 2 of Schedule 3 of this Agreement) and the
              terms of this part of this Agreement and shall indemnify Thales
              Properties Limited fully against all proceedings proper costs
              claims demands expenses loss and liability of whatsoever nature
              and howsoever arising out of any breach non-observance or
              non-performance of those covenants provided that the UK Purchaser
              shall only be required to pay value added tax upon production to
              it of a valid value added tax invoice containing the particulars
              prescribed in Regulation 14 of the Value Added Tax (General)
              Regulations 1995 (as amended);


       10.2.3 the UK Purchaser shall bear all third party public liability and
              employer's liability risks attached to the occupation and use of
              the Hedge End Property.


                                      131
<PAGE>

       10.2.4 Thales shall procure that Thales Properties Limited shall observe
              and perform the conditions on the part of the lessor in the
              proposed sublease of the Hedge End Property (so far as consistent
              with a licence and so far as they are not inconsistent with the
              provisions of this Part 2 of Schedule 3 of this Agreement).


11.    The UK Purchaser shall in respect of the Hedge End Property from the date
       of completion until the End Date not purport to:


11.1   grant give issue or agree to grant give or issue any consent or approval;


11.2   vary or waive performance or observance or agree to vary or to waive
       performance or observance of any of the terms of any document relating to
       the Hedge End Property (except the proposed sublease);


11.3   serve any notice (whether contractual common law or statutory) on the
       Hedge End Landlord or issue any proceedings or take any step in any
       proceedings (provided that for the avoidance of doubt any proceedings
       issued or steps taken in any proceedings relating to a breach by Thales
       of its obligations under this Agreement and any steps taken in connection
       with any proceedings issued pursuant to paragraph 5 of this part of this
       Schedule shall not be deemed to be a breach of this paragraph 11.3); or


11.4   grant or agree to grant any lease licence or other document under which
       any person shall be entitled to occupy any part or parts of the Hedge End
       Property provided that the UK Purchaser shall be entitled to share
       occupation of the Hedge End Property with any


                                      132
<PAGE>

       group company (as that expression is defined in section 42 of the
       Landlord and Tenant Act 1954) provided that no relationship of landlord
       and tenant is created by such sharing of occupation and provided that if
       the UK Purchaser vacates the Hedge End Property in any of the
       circumstances envisaged in paragraph 9.1 of this part of this Schedule it
       shall procure that any sharing company shall also vacate the Hedge End
       Property and provided that details of any such group company are notified
       to Thales before the commencement of such sharing.


12.1   The UK Purchaser shall promptly notify Thales Properties Limited in
       writing of any notice application registration or other communication
       which the UK Purchaser may give or receive in respect of the Hedge End
       Property (but excluding any value added tax election notices or
       acknowledgements served or received by the UK Purchaser).


12.2   Thales shall procure that Thales Properties Limited will notify the UK
       Purchaser in writing of any notice or application registration or other
       communication which Thales Properties Limited may give or receive in
       respect of the Hedge End Property.


13.    The UK Purchaser agrees with Thales Properties Limited in respect of the
       Hedge End Property for the period from the date of Completion up to the
       End Date it will:


13.1   not carry out any alteration or addition to the said Property nor change
       the existing use of the said Property provided that the UK Purchaser
       shall be entitled to reconfigure the Hedge End Property and carry out
       internal non structural alterations without consent but subject to first
       notifying Thales Properties Limited of the proposed works and subject to
       the UK Purchaser reinstating any works which it has carried out pursuant
       to this paragraph 13.1 to Thales' reasonable satisfaction if it is
       required or chooses to vacate the Hedge End Property in accordance with
       sub-paragraphs 9.1.1 or 9.1.2 or 9.1.3 hereof;


                                      133
<PAGE>

13.2   not make any application for planning permission;


13.3   not make any application to the Hedge End Landlord (but provided that any
       steps which the UK Purchaser takes pursuant to this part of this Schedule
       3 in order to facilitate grant of Landlord's Consent shall not be
       considered a breach of this obligation);


13.4   promptly notify Thales in writing of any notice received of any breach or
       infringement or alleged or perceived breach or infringement of any
       obligation restriction stipulation condition right declaration or other
       matter relating to the Hedge End Property and of which breach or
       infringement or alleged or perceived breach or infringement the UK
       Purchaser or anyone authorised on behalf of the UK Purchaser has
       knowledge.


14.    Thales shall procure that Thales Properties Limited and the UK Purchaser
       shall at Thales' cost apply to the Court for an order excluding the
       security of tenure provisions of the Landlord and Tenant Act 1954 (as
       amended) in respect of the sublease of the Hedge End Property to be
       granted pursuant to paragraph 1 of this part of this Schedule and shall
       use all reasonable endeavours to obtain the same. The grant of the
       sublease is conditional on the relevant Court order being obtained.


15.    From the date of this Agreement until the date on which the Underlease
       dated 9 July 1998 between Whitbread plc (1) Archer Communications Systems
       Limited (2) and Racal Electronics plc (3)


                                      134
<PAGE>

       ("the Underlease") has been assigned (with the Hedge End Landlord's
       written consent) to Thales Properties Limited Thales shall procure that
       Thales Properties Limited shall:


15.1   observe and perform the conditions on the part of the assignee pursuant
       to the Agreement for Assignment dated 12 March 2001 between Archer
       Communications Systems Limited (1) and Thales Properties Limited (2)
       ("the Agreement to Assign");


15.2   not rescind the Agreement to Assign pursuant to clause 6.1 of the
       Agreement to Assign or any variation thereof or otherwise terminate the
       Agreement to Assign;


15.3   not vary the Agreement to Assign without the consent of the UK Purchaser;


15.4   take all reasonable steps to procure such extension of the expiry date
       referred to in clause 6 of the Agreement to Assign as is sufficient in
       all the circumstances to enable assignment of the Underlease to Thales
       Properties Limited to take place.


16.    Thales shall at its own cost procure that Thales Properties Limited shall
       take all necessary steps and use all reasonable endeavours to obtain
       grant of a valid fire certificate in respect of the Hedge End Property as
       it exists at the date of Completion provided that Thales shall not be
       liable hereunder to obtain the grant of a valid fire certificate in
       respect of any alterations carried out to the Hedge End Property by the
       UK Purchaser.


                                      135
<PAGE>

DATED                                                                       2002
- --------------------------------------------------------------------------------







                          THALES PROPERTIES LIMITED (1)







                              THE UK PURCHASER (2)







                                    NICE (3)






             ------------------------------------------------------



                                    SUBLEASE



                                       OF



                          OFFICE BUILDING AT HEDGE END

                               EASTLEIGH HAMPSHIRE



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THIS SUBLEASE is made the            day of                                 2002

BETWEEN:

(1)    the Lessor THALES PROPERTIES LIMITED (Company number 1153834) whose
       registered office is at Western Road Bracknell Berkshire RG12 1RG and
       whoever for the time being owns the interest in the Premises which gives
       the right to possession of them when this Lease ends

(2)    the Lessee [THE UK PURCHASER] whose registered office is at [ ] and (so
       far as the law admits or allows) whoever for the time being is entitled
       to the Premises under this Lease and (if the Lessee is an individual) the
       Lessees Personal Representatives

(3)    the Guarantor [NICE] whose registered office is at [ ]



1.     DEFINITIONS


1.1    The following terms used in this Lease (with necessary variations) have
       the following meanings unless the context otherwise requires:-

"CONDUITS" means sewers pipes wires drains cables and other conducting media and
       ancillary equipment for the passage of Utilities

"THE HEADLEASE" means a Lease dated 19 July 1989 and made between Midland Bank
       Pension Trust Limited (1) and Whitbread & Company plc (2) as varied by a
       Deed of Variation dated 2 February 1995 and made between Midland Bank
       Pension Trust Limited (1) and Whitbread (2)

"THE INSURED RISKS" has the same meaning as is given to that expression in the
       Headlease

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"INTEREST" means interest at the rate of four per centum above the base rate of
         Bank of Scotland plc from time to time (or of such other London
         Clearing Bank as the Lessor may by notice in writing to the Lessee
         nominate from time to time) during the period from the date on which
         the expenditure is incurred or from which the interest is to run to the
         date of payment as well before as after any judgment

"THE INTERMEDIATE LANDLORD" means the Landlord under the Intermediate Lease and
         includes its successors in title (if any) its and their Superior
         Landlords

"THE INTERMEDIATE LEASE" means an Underlease dated 9 July 1998 between Whitbread
         plc (1) Archer Communications Systems Limited (2) and Racal Electronics
         plc (3)

"THE LESSOR'S SURVEYOR" means any suitably qualified chartered surveyor or
         firm appointed by or acting for the Lessor (including an employee of
         the Lessor) to perform the function of a Surveyor for any of the
         purposes of this Lease

"NOTICES" all notices required in this Lease shall be in writing addressed (in
         the case of notices to be served on a company) to the registered office
         of the party served and all demands shall be in writing

"THE PAINTING YEARS" means those years in which the Headlease requires the
         exterior and interior (as the case may be) of the Premises to be
         painted

"PERMITTED PART" means either a complete floor of the Premises (save for toilet
         staircases and corridors used in common) a complete wing of the
         Premises or a complete floor within a wing of the Premises (in each
         case save as aforesaid)

"THE PLANNING ACTS" means the Town & County Planning Act 1990 the Planning
         (Consequential Provisions) Act 1990 the Planning (Listed Buildings and
         Conservation Areas) Act 1990 the Planning (Hazardous Substances) Act
         1990 and all other legislation relating to town and country planning

"THE PREMISES" means the whole of the office building at Hedge End, Eastleigh
         being the whole of the premises comprised in the Intermediate Lease

"THE RENT" means from and including the Term Commencement Date the yearly rent
         of (pound)420,000 or such other aMOUNT as is payable as rent from time
         to time under this Lease following increase and review in accordance
         with Clause 6 of this Lease

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"REVIEW DATE" means 24 June 2004 and 24 June 2009

"REVIEW  PERIOD" means each period on and from a Review Date to and including
       the date immediately before the next succeeding Review Date or (as the
       case may be) on and from the relevant Review Date to and including the
       date of expiry of the Term

"THE SPECIFIED USE" means use as offices

"THE SUPERIOR LANDLORD" means the landlord under the Headlease and includes its
       successors in title (if any) its and their superior landlords

"THE TERM" means a term from and including the Term Commencement Date to and
       including 19 June 2014 but subject always to the provisions for earlier
       termination herein contained

"THE TERM COMMENCEMENT DATE" means [                          ] 2002

"UTILITIES" means water gas electricity telephone drainage soil air heating and
       other services or utility supplies

1.2    References to any right exercisable by or permissions granted to the
       Lessor shall unless expressed to the contrary include the exercise of
       such right or permission by the Superior Landlord the Intermediate
       Landlord and those persons authorised by the Lessor or the Superior
       Landlord or the Intermediate Landlord respectively and unless otherwise
       expressed in this Lease any consent or permission required of the Lessor
       shall be deemed to include a requirement for and be conditional upon the
       issue of such consent or permission from the Superior Landlord and the
       Intermediate Landlord and the payment of their respective reasonable
       costs fees and disbursements (including Value Added Tax) for such consent

1.3    Any covenant by the Lessee not to do any act or thing shall include an
       obligation not to permit such act or thing to be done

1.4    Unless expressed to the contrary all rights of entry granted to the
       Lessee or reserved to the Lessor under this Lease shall be exercisable
       only at reasonable times and upon reasonable prior written notice (except
       in case of emergency when no notice need be given)

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1.5    Where the context so admits or requires the singular shall include the
       plural and vice versa the masculine gender shall include the feminine and
       neuter genders and vice versa and where the Lessor or the Lessee or any
       Guarantor shall be two or more individuals expressed or implied to be
       made by or with any such individuals shall be deemed to be made by or
       with them jointly and severally

1.6    Any reference to statute whether specifically or in general shall include
       any statutory extension modification or re-enactment of it and all
       regulations by-laws directions or orders made under it or deriving
       validity from it

1.7    Paragraph and Schedule headings the index and the front sheet do not form
       part of this Lease and shall not be taken into account in the
       construction or interpretation of it

1.8    Unless expressly stated to the contrary nothing in this Lease confers on
       any one other than the parties to it any right pursuant to the Contracts
       (Rights of Third Parties) Act 1999


2.     DEMISE RENT AND TERM

       In consideration of the rent reserved and of the Lessees and the
       Guarantors covenants contained in this Lease the Lessor (at the request
       of the Guarantor) demises the Premises to the Lessee for the Term
       TOGETHER WITH the rights (in common with the Lessor and all others
       entitled to exercise such rights) specified in the First Schedule but
       RESERVING to the Lessor (in common with all others from time to time
       entitled to exercise such rights) the rights specified in the Second
       Schedule and SUBJECT to the matters referred to in Part II of the Third
       Schedule to the Headlease and to the matters contained in the Property
       and Charges Registers of Title Number HP389500 (so far as such matters in
       each case continue to affect the Premises and are capable of being
       enforced) the Lessee PAYING in each year the Rent clear of all deductions
       by equal quarterly payments in advance on the usual quarter days the
       first payment to be made on the day of 2002

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3.     LESSEES COVENANTS

       The Lessee covenants with the Lessor as follows:-

3.1    RENT

                            To pay without any deduction or set off the Rent on
                            the days and in the manner mentioned in Clause 2

3.2    OUTGOINGS

                            To pay and indemnify and keep indemnified the Lessor
                            against all rates taxes charges assessments and
                            outgoings whatsoever (including but not limited to
                            Uniform Business Rate) during the Term assessed or
                            charged in respect of the Premises or any part of
                            them or on the owner or occupier of them whether or
                            not in the nature of those now in being (but
                            excluding any payable by the Lessor as a result of
                            any disposal of dealing with or ownership of the
                            Lessor's interest in this Lease or its receipt of
                            the rents)

3.3    PUBLIC UTILITIES

                            To pay and keep the Lessor indemnified against all
                            charges for Utilities used in the Premises during
                            the Term and the cost of the periodic rental of any
                            meters and other equipment supplied to the Premises
                            during the Term

3.4    STATUTORY REQUIREMENTS

       At the Lessee's expense (and to the reasonable satisfaction of the
       Lessor's Surveyor) to comply with the requirements of any present or
       future statutes and/or of any competent authority in respect of the
       Premises or their use whether by the owner or by the occupier of them and
       not to do any act or thing by reason of which the Lessor may under any
       such statutes and/or the requirements of any such authority incur or have
       imposed upon it or become liable to pay any levy penalty damages
       compensation costs charges or expenses and to keep the Lessor indemnified
       against all breaches of the provisions of such statutes and/or
       requirements and all costs damages and expenses incurred under them and
       produce to the Lessor such licences consents and other documents and
       evidence as the Lessor may reasonably require in order to satisfy itself
       that the provisions of this Clause 3.4 have been complied with in all
       respects

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3.5    ALTERATIONS

                            Not to cut or maim any part of the Premises nor make
                            any addition improvement or alteration to the
                            Premises either external or internal whether
                            structural or otherwise PROVIDED THAT on obtaining
                            the written consent of the Lessor (such consent not
                            to be unreasonably withheld or delayed) the Lessee
                            may make additions or alterations to the interior of
                            the Premises of a non-structural nature PROVIDED
                            HOWEVER THAT any such consent shall in addition to
                            any other reasonable covenants contain (and if not
                            so contained shall be deemed to imply) a covenant
                            that if required the Lessee shall at the
                            determination of the Term reinstate and make good
                            the Premises as if such additions or alterations had
                            not been made and PROVIDED FURTHER that no such
                            consent shall be required for the installation or
                            removal of demountable partitioning

3.6    REPAIRS

       3.6.1  At all times during the Term to observe and perform the covenants
              and conditions as to repair on the part of the tenant contained in
              the Headlease (but subject always to the exceptions therein
              contained) and to indemnify the Lessor from and against any
              actions proceedings claims damages costs expenses or losses
              arising from any breach non-observance or non-performance of those
              covenants and conditions both during and at the end of the Term
              PROVIDED however that nothing in this Lease shall require the
              Lessee to put keep or hand back the Premises in any better state
              of repair decoration or condition than that subsisting at the date
              of this Lease as evidenced by the Schedule of Condition attached
              to the Intermediate Lease

       3.6.2  To be responsible for an make good any damage caused by the
              bursting or overflow or obstruction of any part of the water
              sanitary or

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              heating installation in or serving the Premises arising as a
              result of any act or omission of the Lessee or its subtenants
              servants or agents

       3.6.3  To keep clean the windows in the Premises and to clean them at
              least once a month

3.7    DECORATION

              To paint with at least two coats of good quality paint or such
              other treatment as may be appropriate in a good and workmanlike
              manner all parts of the Premises usually painted or treated in
              each of the Painting Years all painting or treatment during the
              last three months of the Term to be first approved in writing by
              the Lessor (such approval not to be unreasonably withheld or
              delayed) and at the same time with every painting or other
              treatment throughout the Term to varnish colour or treat such
              parts of the Premises as are usually so treated

3.8    INSURANCE CHARGE, ITEMS OF COMMON USE ETC.

              To pay to the Lessor on written demand the whole of (a) the
              Insurance Charge payable under the Headlease (b) all reasonable
              costs and expenses properly incurred from time to time by the
              Intermediate Landlord under the provisions of paragraphs 5, 6,
              7.02 and 8 of the Fifth Schedule to the Headlease (save to the
              extent that any costs fees and expenses arising under those
              paragraphs relate to a breach consequent upon an act or omission
              of the Intermediate Landlord and/or the Superior Landlord) and (c)
              a fair and reasonable proportion to be reasonably determined by
              the Intermediate Landlord's Surveyor of any sums (including fees
              reasonably and properly incurred) which the Intermediate Landlord
              may properly expend for the repair painting lighting cleaning
              replacing renewal (where beyond reasonable economic repair)
              maintenance and preservation of all passage ways pavements roads
              areas Conduits party walls party structure fences or other
              conveniences belonging to or used or enjoyed in common between

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              the Premises and adjoining or neighbouring land or premises
              together with an additional reasonable sum by way of the any
              administration charge payable by the Landlord to the Intermediate
              Landlord

3.9    ENTRY TO INSPECT ETC.

       3.9.1  To permit the Lessor with all necessary materials and equipment at
              reasonable times to enter the Premises to view their condition
              whereupon the Lessor may serve upon the Lessee notice specifying
              any breach of covenant for which the Lessee is liable under this
              Lease and if the Lessee shall not have rectified such breach
              within two calendar months after service of such notice or within
              such shorter period as may reasonably be specified by such notice
              the Lessor may without further notice enter the Premises to
              execute the works required to rectify such breach (and the Lessee
              shall give the Lessor all necessary facilities so to do) and the
              proper cost incurred by the Lessor in so doing together with
              Interest from the date such cost shall have been incurred to the
              date of payment shall be paid by the Lessee to the Lessor upon
              demand and shall be recoverable from the Lessee as a debt or (at
              the Lessor's option) as rent in arrear

       3.9.2  To permit the Lessor at reasonable times to enter the Premises to
              exercise any of the rights which the Lessor has under this Lease
              and for any other purpose connected with the Lessor's interest in
              the Premises including (but not limited to) inspection of the
              Health and Safety File referred to in Clause 3.17.13 and 3.21 the
              persons entering making good any damage caused to the Premises by
              such entry without unreasonable delay and provided that the Lessor
              causes as little interference or disturbance to the Lessee's
              business as reasonably possible the lessor shall not be liable to
              pay compensation in respect of the same to the Lessee

3.10   USE RESTRICTIONS

       3.10.1 Not to use the Premises or any part of them for any illegal or
              immoral purpose nor for any noisy or offensive trade or business
              nor

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              for anything which may become a nuisance or damage to the owners
              or occupiers of adjoining or neighbouring premises Provided that
              the provisions of this clause 3.10.1 shall not prevent the Lessee
              from using the Premises for what they normally use their premises
              for if the Lessee is not by doing so in breach of any of its other
              covenants in this Lease

       3.10.2 Not to discharge any trade or deleterious wastes or anything
              corrosive or harmful into the sewers nor anything but storm water
              and surface water into the surface water drains nor anything which
              may cause any obstruction or deposit in the sewers or drains
              serving the Premises and to take all reasonable precautions to
              prevent any leakage or escape of water or gas from the Premises

       3.10.3 Not to allow on the Premises anything which is or may be dangerous
              radioactive or explosive or specially combustible or inflammable

       3.10.4 Not to trade or display goods or (save as expressly provided by
              this Lease) erect or place signs or advertising material outside
              the Premises nor to cause any obstruction outside the Premises

       3.10.5 Not to use on the Premises any machinery (other than such machines
              as shall be reasonably necessary for the Specified Use) without
              the prior written consent of the Lessor and in particular (but
              without limiting the generality of these covenant) not to use on
              the Premises any coin or token operated gaming machines nor any
              equipment machinery or other thing which shall cause dangerous
              vibrations or overloading of the electrical circuits serving the
              Premises

       3.10.6 Not at any time at such a volume as to be obstructively audible
              outside the Premises to play in the Premises any musical
              instrument or sound reproducing amplifying or receiving equipment

       3.10.7 Not to erect any pole mast aerial wire or dish for receiving
              satellite transmissions upon the outside of the Premises or upon
              the inside of the Premises where visible from the outside save
              where the permitted use of the Premises necessarily requires the
              same and then only with the Lessor's prior written consent (not to
              be unreasonably withheld or delayed)

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3.11   SPECIFIED USE

       Not to use the Premises except for the Specified Use 3.12 EASEMENTS ETC.

       To use all reasonable endeavours to prevent any easement or right
       benefiting the Premises from being obstructed or lost and not to allow
       any encroachment easement or right to be made acquired or attempted to be
       made or acquired over the Premises nor to acknowledge that any right
       enjoyed by the Premises is enjoyed by consent of any other person and to
       give immediate notice to the Lessor if any easement right or encroachment
       affecting or likely to affect the Premises shall be made or attempted and
       at the Lessor's request but the joint cost of the Lessee and the Lessor
       to take such steps as may be reasonably required to prevent or licence
       such easement right or encroachment failing which within a reasonable
       period the Lessor and others authorised by it may enter the Premises and
       take such steps and the reasonable cost properly incurred by the Lessor
       arising out of the Lessee's failure to take such steps together with
       interest shall be paid by the Lessee to the Lessor on demand

3.13   SIGNS ETC.

       Not to display any signs notices or advertisements in or on the Premises
       without the prior written approval in writing of the Lessor such approval
       not to be unreasonably withheld or delayed so long as the Lessee shall
       comply with the provisions of paragraph 15 of the Fifth Schedule to the
       Headlease

3.14   LETTING NOTICES

       To permit the Lessor to affix to the Premises (but so as not materially
       to obscure the windows or materially to interfere with or disturb the
       Lessee's permitted use of the Premises) a letting notice (during the last
       six months of the Term) and (at any time during the Term) a "for sale"
       notice which notices in either case (provided they do not interfere with
       or disturb the Lessee's permitted use of the Premises) shall not be moved
       removed or obscured and to permit persons with written authority from the
       Lessor or its agents on prior notice at reasonable times of the day to
       view the Premises

3.15   EXPENSES

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       To pay all reasonable expenses (including professional fees and costs)
       properly incurred by the Lessor the Intermediate Landlord or the Superior
       Landlord and any of their respective professional advisers incidental to

       3.15.1 the preparation and service of notices under or in or in bona fide
              contemplation of proceedings under Sections 146 and/or 147 of the
              Law of Property Act 1925 and/or under the Leasehold Property
              (Repairs) Act 1938 notwithstanding that any right of re-entry or
              forfeiture may have been waived by the Lessor or any notice served
              on the Lessee may have been complied with or forfeiture is avoided
              otherwise than by relief granted by the Court

       3.15.2 the enforcement whether during or after the end of the Term of any
              of the Lessee's covenants and the preparation and/or service of
              all notices and schedules relating to breaches of the Lessee's
              covenants (including all inspections necessary for the preparation
              and/or service of such notices or schedules and/or for
              ascertaining compliance with them)

       3.15.3 all reasonable costs properly incurred in connection with all
              applications by the Lessee for any consent required under this
              Lease or any request made by the Lessee relating to the Premises
              whether under this Lease or otherwise and whether or not such
              consent is refused or such application withdrawn but not where the
              same is unlawfully or unreasonably withheld or delayed

       3.15.4 the recovery of any arrears of rent or other monies payable under
              this Lease

3.16   RETURN POSSESSION

       At the end of the Term (however it ends) to return possession of the
       Premises to the Lessor clean and in the state of repair and decoration in
       which this Lease requires the Lessee to keep them and having first
       replaced any Lessor's fixtures and fittings which may be missing or
       damaged with others of a similar kind and quality to the reasonable
       satisfaction of the Lessor's Surveyors and (unless the Lessor shall in
       writing have relieved the Lessee of such obligation) having removed or
       effaced all signs and having removed all tenants and trade fixtures

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       and fittings and partitioning from and reinstated the Premises to their
       state and condition subsisting prior to the carrying out of any
       alterations or additions made during the Term and having made good to the
       Lessor's reasonable satisfaction and at the Lessee's expense any damage
       resulting from such removal and effacing and reinstatement and from the
       removal of any tenant's and trade fixtures and fittings

3.17   ASSIGNMENT, UNDERLETTING ETC.

       3.17.1 Not to assign or charge only part of the Premises

       3.17.2 Not to charge by way of fixed charge the whole of the Premises
              without the prior written consent of the Lessor (which shall not
              be unreasonably withheld in respect of a bona fide charge in
              favour of a clearing bank or other major financial institution)
              provided that no consent will be required for a floating charge
              over the whole

       3.17.3 Not to assign the whole of the Premises without the prior written
              consent of the Lessor (which it will not unreasonably withhold or
              delay) PROVIDED that the Lessor shall be entitled to withhold its
              consent (i) if it shall not be satisfied (acting reasonably) that
              the proposed assignee is of adequate financial standing and is
              capable of paying the rents payable under and observing and
              performing the Lessee's covenants and the conditions contained in
              this Lease and that the Lessor shall be entitled (ii) to require
              the Lessee to pay to the Lessor all rents and other ascertainable
              sums which shall have fallen due (unless they are the subject of a
              bona fide dispute) prior to the date of the assignment (iii) to
              require that the Lessee enter into a Deed in such form as the
              Lessor may reasonably require by which the Lessee shall guarantee
              payment of the rents and performance and observance of the
              Lessee's covenants and the conditions contained in this Lease by
              the proposed assignee so long as this Lease shall remain vested in
              the assignee such Deed being an Authorised Guarantee Agreement for
              the purposes of the Landlord and Tenant (Covenants) Act 1995 ("the
              1995 Act") (iv) to require that any proposed assignee shall before
              being allowed into occupation enter into direct obligations with
              the Lessor in a

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              form which the Lessor shall reasonably require and either (v) to
              require (if the Lessor shall reasonably so determine) that not
              more than two guarantors for that assignee reasonably acceptable
              to the Lessor shall enter into obligations by Deed in favour of
              the Lessor in the form set out in the Second Schedule to this
              Lease (mutatis mutandis) or (vi) (where no guarantee under (v) is
              given) to require (if the Lessor shall reasonably so determine)
              the proposed assignee to execute and deliver to the Lessor prior
              to the assignment a Rent Deposit Deed in such form and for such
              sum as the Lessor shall reasonably determine and pay by way of
              cleared funds the whole of the sum so determined

       3.17.4 Save for an underletting of the whole or a Permitted Part of the
              Premises in accordance with the following provisions of this
              Clause 3.17 or an assignment or charge in accordance with the
              preceding provisions of this clause 3.17 not to underlet share
              part with possession or occupation of or grant any licence or
              declare any trust in respect of the whole or any part of the
              Premises and not in any event to permit or create more than three
              occupancies in the Premises PROVIDED THAT the Lessee may permit
              any member of the same group of companies as the Lessee or of the
              Guarantor or any associated company to occupy the whole or part of
              the Premises without the consent of the Lessor so long as the
              relationship of landlord and tenant is not thereby created and so
              long as such occupation shall be terminated upon such member
              ceasing to be a member of such group or an associated company as
              aforesaid and provided that the Lessee shall keep the Lessor
              informed of the identity of all such occupiers of the Premises

       3.17.5 Not to underlet the whole or a Permitted Part of the Premises
              without the prior written consent of the Lessor (which shall not
              be unreasonably withheld) in the case of an underletting at the
              best rent reasonably obtainable for the premises being underlet
              without taking a fine or premium and containing (i) provisions for
              the upward review of the rent at the same dates as provided by
              this Lease and (ii) no provisions in

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                any way commuting rent and (iii) other obligations on the part
                of the underlessee consistent with and no less onerous than the
                obligations of the Lessee under this Lease (other than the
                covenant to pay the rent reserved by this Lease)

        3.17.6  That every underlease and sub-underlease whether mediate or
                immediate shall contain no less onerous restrictions on
                assignment underletting parting with possession sharing
                occupation and granting of licences and the same provisions for
                direct covenants and registration as are contained in this Lease

        3.17.7  To procure that any proposed underlessee shall before being
                allowed into occupation enter into a direct covenant with the
                Lessor to perform and observe all the Lessees covenants (other
                than the covenant to pay rent) and the conditions contained in
                this Lease so far as they relate to or affect the underlet
                premises and so long as the term to be created by such
                underlease shall remain vested in such underlessee and (if the
                Lessor shall so reasonably require) that respectable and
                responsible guarantors for such underlessee shall enter into
                covenants by Deed in favour of the Lessee and the Lessor in such
                form as the Lessor may reasonably require in the light of the
                proposed underlessee's liabilities

        3.17.8  Not to waive expressly or impliedly any of the covenants imposed
                in any underlease but upon any breach forthwith to use all
                reasonable endeavours to enforce those covenants

        3.17.9  To procure that any provisions for the review of rent under any
                underlease shall be pursued diligently and upon request to
                provide the Lessor with such information as it shall reasonably
                require in connection with such review

        3.17.10 To give the Lessor notice (and if the Lessor reasonably so
                requires at the Lessee's expense to procure that some other
                person or corporation acceptable to the Lessor executes a
                guarantee in such form as the Lessor shall reasonably require)
                within fifty six days of the death or bankruptcy during the Term
                of any person who has or shall have guaranteed to the Lessor the
                payment of the rent and the observance

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                and performance of the Lessees covenants under this Lease or of
                such person (being a company) suffering a receiver to be
                appointed or passing a resolution to wind up or entering into
                liquidation

        3.17.11 Not to reduce the rent payable nor to vary any of the provisions
                of nor to give any consent required under any permitted
                underlease without the previous written consent of the Lessor
                which shall not be unreasonably withheld or delayed where such
                consent if required under this Lease is not to be unreasonably
                withheld or delayed

        3.17.12 At the request of the Lessor to use its reasonable endeavours to
                terminate lawfully any underlease which is not permitted under
                this Lease

        3.17.13 Upon completion of each assignment of this Lease to deliver to
                the assignee the duplicate of any Health and Safety File for the
                Premises prepared under the Construction (Design and Management)
                Regulations 1994 ("the CDM Regulations") complete and fully up
                dated and obtain a written acknowledgement from the assignee of
                receipt of such duplicate and of its understanding of the nature
                and purpose of the File and promptly to produce to the Lessor a
                true copy of such acknowledgement

        3.17.14 To procure that before the grant of any underlease of THE
                PREMISES OR a Permitted Part a court order is obtained under the
                provisions of Section 38(4) of the Landlord and Tenant Act 1954
                (as amended by Section 5 of the Law of Property Act 1969)
                excluding the provisions of Sections 24-28 inclusive of that Act
                in relation to the proposed underlease (the agreement excluding
                those provisions being contained in the proposed underlease) and
                that a certified copy of the order is supplied to the Lessor

3.18    REGISTRATION

        3.18.1  Within fourteen days after any assignment of this Lease to give
                written notice to the Lessor of the name and address of the
                party to whom all future demands for rent and other moneys
                payable under this Lease are to be addressed and within
                twenty-one days after any assignment

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                charge by way of fixed charge underlease or devolution of the
                Premises or any part of them or any interest in them (including
                the surrender or forfeiture of any underlease) or change of name
                of the Lessee or any guarantor to give notice of such event in
                writing to the Solicitors for the time being of the Lessor and
                to provide them with a certified copy of the document effecting
                such event and to pay to such Solicitors a registration fee
                of(pound)25.00 or such larger sum as such Solicitors shall
                reasonably require

         3.18.2       Within 21 days after the rent payable upon review of rent
                      in any underlease of the Premises or any part of them
                      shall have been ascertained (whether by agreement
                      arbitration or otherwise) to notify the Lessor in writing
                      of the rent so ascertained and deliver to the Lessor a
                      certified copy of the award of any arbitrator or expert
                      engaged in connection with such review and as soon as
                      practicable thereafter a memorandum recording the revised
                      rent signed by or on behalf of the parties to such review

3.19    NOTICES

        At the Lessees expense to comply with any notice order proposal
        requisition direction or other thing received from a competent authority
        and affecting or likely to affect the Premises their use or their owner
        or occupier or the Lessors interest in the Premises and forthwith to
        deliver to the Lessor a copy of such notice order proposal requisition
        direction or other thing and at the reasonable request of the Lessor to
        make or join with the Lessor in making such objections and
        representations against or in respect of any such matters as the Lessor
        shall reasonably deem expedient

3.20    NOT TO OVERLOAD ETC.

        Not to erect on or suspend from the Premises or any part of them
        anything which will or may overload any floor wall roof or any other
        part of the structure or structural frame of the Premises

3.21    COMPLIANCE WITH STATUTE

        Without prejudice to the general terms of Clause 3.4 at all times during
        the Term to comply at the Lessee's expense with the provisions of any
        relevant legislation

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        for the time being in force including the Town & County Planning Act
        1990 and Safety at Work etc. Act 1974 the Factories Act 1961 the Offices
        Shops and the Railway Premises Act 1963 The Fire Precautions Act 1971
        the CDM Regulations the Public Health Acts and the Clean Air Acts and
        with any regulations or orders made and all licences consents and
        conditions granted or imposed under such legislation so far as the same
        relate to or affect the Premises or their use their owner or occupier or
        the Lessors interest in them and as often as occasion shall require to
        obtain at the Lessee's expense all such licences and consents as may be
        necessary under such legislation for any use of or permitted
        improvements alterations or additions to the Premises and not to do or
        omit on or about the Premises any act or thing by reason of which the
        Lessor may under any such legislation incur or become liable to pay any
        levy penalty damages compensation costs charges or expenses and at all
        times during the Term to ensure that the Lessor and the Health and
        Safety Executive are promptly notified of any changes to the Health and
        Safety File in respect of the Premises prepared under the CDM
        Regulations (the Lessee being (as it hereby acknowledges) "the client"
        for the purposes of those Regulations) so that in particular the Lessor
        can satisfy itself that the original of any such File maintained by it
        is complete and up to date and to keep the Lessor fully indemnified
        against all proceedings costs expenses and demands in relation to any
        such matters and to produce to the Lessor such licences consents and
        other documents and evidence as the Lessor may reasonably require in
        order to satisfy itself that the provisions of this Clause 3.21 have
        been complied with in all respects

3.22    PLANNING

        3.22.1  Not to apply for nor procure the application by any third party
                for any planning consent (which expression shall include any
                outline or detailed consent or any approval of reserved matters
                or any appeal to the Secretary of State for the Environment)
                relating to the Premises (whether or not in conjunction with
                other premises) without the Lessor's prior written consent which
                shall not be unreasonably withheld or delayed in respect of any
                matter in relation to which the Lessor's consent is not under
                the other provisions of this Lease to be unreasonably withheld
                or delayed

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        3.22.2  As soon as practicable after the grant of planning consent to
                the Lessee to give to the Lessor a full copy of it and of the
                application for it and its supporting drawings and
                specifications and calculations (if any)

        3.22.3  Unless the Lessor shall otherwise direct the Lessee shall carry
                out or cause to be carried out before the end of the Term any
                works stipulated to be carried out to the Premises by a date
                later than the end of the Term as a condition of any planning
                consent which may have been implemented by the Lessee during the
                Term

        3.22.4  To produce to the Lessor such plans documents and evidence as
                the Lessor may reasonably require in order to satisfy itself
                that the provisions of this Clause 3.22 have been complied with
                in all respects

3.23    VALUE ADDED TAX

        Where by virtue of any of the provisions of this Lease the Lessee is
        required to pay or repay to the Lessor or to any other person any costs
        fee charge or expense or other sum in respect of the supply of any goods
        or services by the Lessor or any other person (including for the
        avoidance of doubt any rent payable hereunder) then save where the
        Lessor is entitled to recover the same the Lessee shall also be required
        to pay and shall keep the Lessor and such other person indemnified
        against the amount of any Value Added Tax which may be chargeable in
        respect of such supply or which the Lessor may elect to charge in
        respect of it PROVIDED THAT a valid Value Added Tax invoice containing
        the particulars prescribed in Regulation 14 of the Value Added Tax
        (General) Regulations 1995 (as amended) is rendered to the Lessee in
        respect of the supply of any goods or services by the Lessor

3.24    INDEMNITY

        To indemnify the Lessor against all liability and costs (including any
        increase in insurance premium) in respect of any breach of covenant on
        the part of the Lessee or any works carried out at any time during the
        Term to the Premises by the Lessee anything now or during the Term
        attached to or projecting from the Premises any act neglect or omission
        by the Lessee or any underlessee or by their respective servants or
        agents or by any persons in the Premises with the

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        actual or implied authority of any of them or out of infringement
        disturbance or destruction during the Term by the Lessee of any right or
        easement

3.25    INFORMATION

        To provide within fourteen days of receipt of a written request from the
        Lessor such information as the Lessor may reasonably require as to the
        occupation of the Premises including details of all underlettings and
        licences granted by the Lessee and the full names and addresses of all
        persons in actual or deemed possession of the Premises and each and
        every part of them

3.26    NOTIFY DAMAGE

        Immediately upon becoming aware of it to give written notice to the
        Lessor of any damage to the Premises caused by any of the Insured Risks
        and of any defect in the Premises which if not remedied might give rise
        to any third party claim or to any obligation on the Lessor to do or
        refrain from doing any act or thing to comply with any legal duty of
        care and at all times to display and maintain on the Premises all
        notices which the Lessor may from time to time reasonably require to be
        displayed but which shall not be required to be displayed in such a
        position as to interfere with the Lessee's business

3.27    BAILIFF'S FEES

        To pay all fees properly incurred by the Lessor to any bailiff
        instructed by the Lessor for the collection of any rent or other sum due
        under this Lease

3.28    FIRE FIGHTING EQUIPMENT AND SECURITY

        3.28.1  To keep the Premises supplied and equipped with all fire
                fighting and extinguishing appliances from time to time required
                by law or required by the insurers of the Premises such
                appliances being kept open to inspection and properly maintained
                and not to obstruct the access to or means of working such
                appliances or the means of escape from the Premises in case of
                fire

        3.28.2  To take expeditiously all requisite steps to obtain any
                necessary fire certificate for the Premises

        3.28.3  To ensure that at all times the Lessor has written notice of the
                name and address and telephone number of at least one keyholder
                of the Premises

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        3.28.4  At any time that the Premises or any part of them is unoccupied
                to take all reasonable precautions to prevent vandalism theft
                and unlawful occupation

3.29    INTERMEDIATE LEASE

        Not to do omit suffer or permit in relation to the Premises any act or
        thing that would or might cause the Lessor to be in breach of the
        Intermediate Lease or that if done omitted suffered or permitted by the
        Lessor would or might constitute a breach of the covenants on the part
        of the tenant and the conditions contained in the Intermediate Lease and
        to observe the covenants referred to in the Property and Charges
        Register of title HP389500 (so far as aforesaid) and to indemnify the
        Lessor against all actions claims costs expenses and liabilities in
        respect of them

4.      LESSOR'S COVENANTS

        The Lessor covenants with the Lessee as follows:

4.1     QUIET ENJOYMENT

        That the Lessee paying the rent and other monies payable under and
        observing and performing the Lessee's covenants and stipulations
        contained in this Lease shall peaceably hold and enjoy the Premises
        during the Term without any interruption by the Lessor or any person
        rightfully claiming by through under or in trust for it or by title
        paramount

4.2     HEADLEASE

        4.2.1   To pay the rents reserved by the Intermediate Lease and to
                perform and observe the tenants covenants and conditions
                contained therein insofar as the Lessee is not liable for such
                performance under the covenants on its part contained in this
                Lease and to indemnify the Lessee against all actions costs
                claims expenses and liabilities in respect of any breach of this
                covenant

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        4.2.2   On the request and at the reasonable cost of the Lessee to use
                all reasonable endeavours to enforce the covenants on the part
                of the Intermediate Landlord contained in the Intermediate Lease

        4.2.3   To use all reasonable endeavours at the cost of the Lessee to
                obtain the consent of the Intermediate Landlord whenever the
                Lessee makes application for any consent required under this
                Sublease and such consent is also required pursuant to the
                provisions of the Intermediate Lease

        4.2.4   To provide on request details of the insurance maintained by the
                Superior Landlord (or the Lessor as the case may be) in respect
                of the Premises and to use reasonable endeavours to procure that
                the interest of the Lessee is noted on the policy of insurance
                whether by specific or general indorsement

4.3     Unless otherwise directed in writing by the Lessee or its successors in
        title or unless the Lessee or its successors in title no longer has any
        legal interest in the Premises at the time of service of the notice
        herein referred to the Lessor hereby covenants that it will not serve
        notice to terminate the Intermediate Lease pursuant to Clause 7(2) of
        the Intermediate Lease and that it will procure that upon any assignment
        of the interest of the Lessor as tenant under the Intermediate Lease the
        assignee will enter into a covenant in identical terms to this covenant
        directly with the Lessee or its successors in title

5.      PROVISOS

        PROVIDED ALWAYS and it is agreed between the parties as follows:

5.1     INTEREST

        That if the rent or any part of it shall at any time be unpaid within 7
        days of the due date or any other monies due by the Lessee to the Lessor
        shall at any time be unpaid within fourteen days of the due date
        (whether in respect of rent any formal demand shall have been made or
        not) then the Lessee shall on demand pay to the Lessor in addition
        Interest on such sum for the period from the date when such sum became
        due to the date of payment to the Lessor

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5.2     FORFEITURE

        That

        5.2.1   if the rent or any part of it or any Interest payable or any
                other monies due by the Lessee to the Lessor shall at any time
                be unpaid for twenty one days (whether in respect of rent any
                formal demand shall have been made or not) or

        5.2.2   if the Lessee shall fail to perform or observe any of its
                covenants or stipulations in this Lease or

        5.2.3   if the Lessee for the time being shall be wound up or an
                administration order made against it/him or is adjudged bankrupt
                or enters into liquidation (except voluntarily for the purpose
                of amalgamation or reconstruction) or suffer a Receiver or an
                Administrative Receiver or a Receiver and Manager to be
                appointed or become subject to an administration order under the
                Insolvency Act 1986 or enter into an agreement or composition
                for the benefit of its creditors or have a receiving order made
                against him

        then it shall be lawful for the Lessor or any persons duly authorised by
        it to forfeit this Lease by entering the Premises or any part of them
        and the Term shall thereupon absolutely cease and be of no further
        effect but without affecting any liability in respect of any breach of
        any of the Lessee's or guarantor's covenants which shall already have
        accrued

5.3     EXCLUSION OF WARRANTY

        Nothing in this Lease or in any consent granted by the Lessor under this
        Lease shall imply or warrant that the Premises may be used for the
        purpose permitted by this Lease so far as concerns any statutes relating
        to town and country planning or that any alterations or additions or
        other works to the Premises which the Lessor may permit under the
        provisions of this Lease will not require planning permission and it is
        agreed that in entering into this Lease the Lessee does not rely on any
        such warranty given by the Lessor or by any person on its behalf

5.4     LESSEE'S EFFECTS

        The Lessee hereby irrevocably appoints the Lessor to be its agent to
        store or dispose of any effects left by the Lessee on the Premises after
        the end of the

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        Term on such terms as the Lessor thinks fit and without the Lessor being
        liable to the Lessee save to account for the net proceeds of sale less
        the cost of storage (if any) and any other expenses reasonably incurred
        by the Lessor PROVIDED THAT the Lessee will indemnify the Lessor against
        any liability incurred by it to any third party whose property shall
        have been sold by the Lessor in the mistaken belief (which shall be
        presumed unless the contrary be proved) that such property belonged to
        the Lessee and was liable to be dealt with as such pursuant to the
        provisions of this clause 5.4

5.5     ACCEPTANCE OF RENT

        5.5.1   The demand for and/or acceptance of any of the rents reserved by
                or any other monies due under this Lease by the Lessor or its
                agents shall not constitute or be deemed a waiver of any of the
                Lessees or any guarantors or subtenants covenants nor of any
                breach of such covenants or of any of the conditions contained
                in this Lease or in any Underlease or of any of the Lessor's
                remedies in respect of such breach and neither the Lessee nor
                any guarantor nor any subtenant shall in any proceedings for
                forfeiture plead or otherwise propose any such demand or
                acceptance as a waiver by the Lessor or as a defence for the
                Lessee guarantor or such sub-tenant (as the case may be)

        5.5.2   If the Lessor shall (by virtue of its reasonable belief that the
                Lessee or any guarantor or any subtenant is in breach of
                covenant or condition or might acquire against the Lessor any
                right or entitlement not expressly hereby granted) refrain from
                demanding or accepting rent or any other moneys due under this
                Lease then Interest shall be payable by the Lessee upon such
                rent or moneys for the period during which the Lessor shall so
                properly refrain

5.6     NOTICES

        Any notice required to be served on any party shall be sufficiently
        served if it is sent by recorded delivery or registered post in a
        stamped envelope addressed to the Lessee Lessor or any guarantor at its
        registered office or address for service in the United Kingdom but if
        there shall be no such address at its last known place of abode or
        business and if sent by recorded delivery or registered post

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        such service shall be deemed to be made on the working day following the
        date of posting

5.7     RENT SUSPENSION

        In the event of the Premises or any part of them at any time during the
        Term being damaged or destroyed by any of the Insured Risks (as that
        expression is defined in the Headlease) in respect of which the Lessor
        or the Intermediate Landlord or the Superior Landlord (as appropriate)
        is indemnified under insurance of the Premises so as to render the
        Premises incapable of occupation and use then (save to the extent that
        the insurance moneys become irrecoverable through any act or default of
        the Lessee or any person under its control) the rent reserved by this
        Lease or a fair proportion of it according to the nature and extent that
        the Premises shall be incapable of occupation and use shall be suspended
        until either the Premises shall again be capable of use and occupation
        or for a period ("the Rent Insurance Period") equal to the number of
        years for which insurance against loss of rent has been effected under
        the Superior Landlord's covenant in the Headlease (whichever is the
        shorter period)

5.8     LESSOR'S LIABILITY

        In any case where the facts are or should reasonably be known to the
        Lessee the Lessor shall not in any event be liable to the Lessee in
        respect of any failure of the Lessor to perform any of its obligations
        to the Lessee hereunder whether express or implied unless and until the
        Lessor has or ought reasonably to have become aware of the facts giving
        rise to the failure and the Lessor has failed within a reasonable time
        to remedy the same

5.9     HEADLEASE RENT REVIEWS

        The Lessee shall subject to the prior approval of the Lessor and of the
        Intermediate Landlord (such approval not to be unreasonably withheld or
        delayed) at its own expense act as the agents for the Lessor and the
        Intermediate Landlord in conducting the review of rent under the
        Headlease at 24 June 2004 and 24 June 2009 and in doing so the Lessee
        shall keep the Lessor and the Intermediate Landlord informed at all
        times of the progress of and all material aspects of all negotiations
        between the Lessee and the Superior Landlord and/or their respective
        surveyors or agents and shall give full and

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        proper consideration to all proposals observations and arguments in
        respect of such reviews as the Lessor or the Intermediate Landlord may
        make or raise and shall put (or procure to be put) such proposals
        observations and arguments to the Superior Landlord and/or its surveyors
        or agents or to any independent expert appointed to determine the review
        of rent under the Headlease PROVIDED that the Lessee shall not settle
        such reviews of rent or agree any rent payable following such reviews
        without the prior express written approval of the Lessor and of the
        Intermediate Landlord (such approval not to be unreasonably withheld or
        delayed)

5.10    Exclusion of Landlord and Tenant Act 1954

        Having been authorised so to do by an Order of the [ ] County Court
        dated the [ ] day of [ ] 2002 under the provisions of section 38(4) of
        the Landlord and Tenant Act 1954 the Lessor and the Lessee hereby agree
        that the provisions of sections 24-28 of the said Act shall be excluded
        in relation to the tenancy hereby created

6.      RENT INCREASE AND REVIEW

6.1     During each Review Period the Lessee shall pay to the Lessor in each
        year rent being whichever is the greater of a sum equal to the rent
        payable immediately prior to the relevant Review Date or such reviewed
        rent as may be agreed or determined as provided below (whichever is the
        greater)

6.2     The Rent shall be reviewed in accordance with the provisions of
        paragraphs 3 to 5 of Part 1 of the Fourth Schedule of the Headlease
        which provisions shall be incorporated in this Lease as if the same were
        set out herein in extenso so that references in those provisions to "the
        Landlord" and "the Tenant" after such incorporation are references to
        the Lessor and the Lessee in this Lease but with the following
        modifications:

                6.2.1   "the Review Date" and "the Review Period" are defined as
                        set out in clause 1.1 6.2.2 In the definition of the
                        "Market Rent":

                6.2.2.1 "12 years" shall be substituted for "25" years in line 8

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                6.2.2.2 references to "this Lease" mean this Sublease

                6.2.2.3 in disregard (d) the words "or the Superior Landlord or
                        the Intermediate Landlord" shall be added after "the
                        Landlord"

                6.3     The expression "the Rent" shall be substituted for the
                        expression "the Rent under this part of this Schedule"

7.      OPTIONS TO TERMINATE LEASE

7.1     If by damage or destruction by an Insured Risk (as that expression is
        defined in the Headlease) the Premises or a substantial part of them
        shall at any time be rendered unfit for occupation or use for the
        Specified Use or inaccessible and the Premises shall not have been
        reinstated and rendered capable of occupation for the Specified Use by
        three months before the end of the Rent Insurance Period then either
        party may thereupon determine the Term and this Lease by not less than
        three calendar months notice in writing to that effect served upon the
        other and upon the expiration of such notice this Lease and the Term
        shall cease and be of not further effect (but without affecting the
        liability of the Lessor or the Lessee for any breach of covenant which
        shall already have accrued) PROVIDED that no such notice shall be valid
        if served more than five weeks after the expiration of the Rent
        Insurance Period or if at that date of service or expiration of such
        notice the Premises shall in fact have been so reinstated and rendered
        capable of occupation and use for the Specified Use and PROVIDED that
        any insurance monies payable under the policy of insurance for the
        Premises shall be paid to and belong to the Lessor or the Superior
        Landlord (as the case may be) for its own use

7.2     If the Lessee shall desire to terminate this Lease at any time during
        the period of 12 months after the Term Commencement Date (but on no
        other date) and shall have served on the Lessor not less than 3 calendar
        months prior written notice of such desire this Lease shall upon expiry
        of the notice served by the Lessee cease and absolutely determine (but
        without prejudice to any rights or claims in respect of any subsisting
        breach of covenant) and the Lessee shall deliver up to the Lessor full
        vacant possession of the Premises and materially in accordance with the
        covenants on the part of the Lessee hereinbefore contained

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8.      GUARANTOR'S COVENANTS

        The Guarantor in consideration of the grant of this Lease to the Lessee
        at the request of the Guarantor covenants with the Lessor in the manner
        set out in the Second Schedule

IN WITNESS whereof the parties have executed this Lease as their Deed the day
and year first before written

                               THE FIRST SCHEDULE
                                     PART I
                                 RIGHTS GRANTED
The rights granted by the Second Schedule to the Headlease


                                     PART II
                                 RIGHTS RESERVED
The exceptions and reservations contained in the Third Schedule to the Headlease



                               THE SECOND SCHEDULE
                                    GUARANTEE

The Guarantor guarantees to and covenants with and for the benefit of the Lessor
(which expression shall for the purpose of this guarantee and covenant include
the Lessor's successors in title to the reversion without the need for express
assignment)

1.      that the Lessee (here meaning [ ]) will at all times (a) until a
        permitted assignment of this Lease by the Lessee pay the rent and all
        other sums agreed to be paid by the Lessee when due and will also duly
        perform and observe its covenants and the stipulations in this Lease and
        (b) after a permitted assignment of this Lease duly perform and observe
        its covenants and the stipulations contained in any Deed which the
        Lessee shall enter into under

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        the terms of Clause 3.17.3 of this Lease ("an Authorised Guarantee
        Agreement") and that the Guarantor will if the Lessee shall make any
        default in payment of such rent or any other sums or in the performance
        and observance of such covenants and stipulations pay the rent and
        monies and observe or perform the covenants or stipulations in respect
        of which the Lessee shall be in default and will make good to and
        indemnify the Lessor in respect of all losses damages liability costs
        and expenses sustained by the Lessor through the default of the Lessee
        PROVIDED ALWAYS that the liability of the Guarantor shall be no greater
        than the liability of the Lessee to the Lessor in respect of the act or
        default giving rise to the liability and any neglect or forbearance of
        the Lessor in endeavouring to obtain payment of the rent or other monies
        when the same become due or any refusal by the Lessor to accept rent
        tendered by or on behalf of the Lessee at a time when the Lessor may be
        entitled (or would after service of a notice under Section 146 of the
        Law of Property Act 1925 be entitled) to re-enter the Premises or any
        delay by the Lessor in taking any steps to enforce performance or
        observance of the said covenants or stipulations and any time or
        indulgence which may be given by the Lessor to the Lessee or the fact
        that the reversion to this Lease may have been assigned or that the
        Lessee may have ceased to exist or be under any legal limitation or any
        immunity disability or incapacity or any other act or thing (save for
        the provisions of the 1995 Act) whereby but for this provision the
        Guarantor would have been released shall not release or in any way
        lessen or affect the liability of the Guarantor under this guarantee

2.      that if the Lessee shall enter into liquidation or become bankrupt and
        the liquidator or trustee shall disclaim or surrender this Lease or if
        this Lease shall be forfeited or if the Lessee shall cease to exist then
        the Guarantor will be required by the Lessor in writing within three
        months after such disclaimer or other event accept from the Lessor a
        lease of the Premises for a term equal to the residue of the Term
        unexpired at the date of such disclaimer or other event and containing
        the same rent covenants provisos and other terms as this Lease shall
        execute and deliver to the Lessor a counterpart and shall pay the
        reasonable and proper costs of such new lease

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3.      that if for any reason the Lessor does not require the Guarantor of any
        of them to accept a new lease of the Premises as mentioned above then
        the Guarantors shall pay to the Lessor on demand an amount equal to the
        rent reserved by and other sums payable under this Lease at the date of
        such disclaimer or other event for the period commencing with such date
        and ending of whichever is the earliest of the following dates:

                3.1     the expiration of six calendar months after such date
                3.2     the expiration of the Term
                3.3     the date (if any) upon which the Premises shall be
                        re-let


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                                   SCHEDULE 4

                                   WARRANTIES

                                     PART 1



1       CAPACITY OF THALES AND THE COMPANIES

1.1     Thales and each of the Companies are duly organised and validly existing
        under all applicable laws.

1.2     Thales and the Companies have the requisite power and authority to enter
        into and perform this Agreement and the other documents which are to be
        executed by each of them pursuant to this Agreement (the "Thales
        Completion Documents").

1.3     The Thales Completion Documents will, when executed by Thales and each
        of the Companies constitute binding obligations of Thales and each of
        the Companies in accordance with their respective terms.

1.4     The execution and delivery of, and the performance by Thales and each of
        the Companies of their respective obligations under the Thales
        Completion Documents will not:

        1.4.1   result in a breach of, or constitute a default under, any
                instrument to which Thales or any of the Companies is a party or
                by which Thales or any of the Companies is bound; or

        1.4.2   result in a breach of any order, judgment or decree of any court
                or governmental agency to which Thales or any of the Companies
                is a party or by which Thales or any of the Companies is bound;
                or

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        1.4.3   require the consent of the shareholders of Thales or any of the
                Companies or of any other person; or

        1.4.4   require Thales or any of the Companies to obtain any consent or
                approval of, or give any notice to or make any registration
                with, any governmental or other authority which has not been
                obtained or made at the date hereof both on an unconditional
                basis and on a basis which cannot be revoked (save pursuant to
                any legal or regulatory entitlement to revoke the same other
                than by reason of any misrepresentation or misstatement).


        OVERSEAS OPERATIONS


1.5     The description of the overseas operations of the Business set out in
        the Disclosure Letter is a true and accurate description of the overseas
        operations of the Business.



2       FINANCIAL


2.1     The Accounts of TCSL have been prepared in accordance with the
        requirements of all relevant statutes and with generally accepted
        accountancy principles and practice applicable or prevailing in the
        United Kingdom and show a true and fair view of the assets and
        liabilities of TCSL and of its profits or loss for financial period
        ending on the Accounting Date.


2.2     The Accounts of TCSA have been prepared in accordance with the
        requirements of all relevant statutes and with generally accepted
        accountancy principles and

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        practice applicable or prevailing in France and show a true and fair
        view of the assets and liabilities of TCSA and of its profits or loss
        for the financial period ending on the Accounting Date.


2.3     The Accounts of TCS GmbH have been prepared in accordance with the
        requirements of all relevant statutes and with generally accepted
        accountancy principles and practice applicable or prevailing in Germany
        and show a true and fair view of the assets and liabilities of TCS GmbH
        and of its profits or loss for the financial period ending on the
        Accounting Date.


2.4     The Accounts of TCS Inc. have been prepared in accordance with the
        requirements of all relevant statutes and with generally accepted
        accountancy principles and practice applicable or prevailing in the
        United States of America and show a true and fair view of the assets and
        liabilities of TCS Inc. and of its profits or loss for the financial
        period ending on the Accounting Date.


2.5     Without limiting the generality of warranties 2.1 to 2.4 (inclusive) the
        results shown by the Accounts of TCSL and the audited accounts of TCSL
        for the period ending 31 December 2000 did not (except as therein
        disclosed) record any "extraordinary" or "exceptional" item (as such
        terms are currently interpreted by Financial Reporting Standards
        applicable to any of the Companies).


2.6     Thales confirms that it has reviewed all entries regarding TCS Companies
        combination that have been prepared according to the accounting
        principles of this Agreement. As result of this review Thales confirms
        that it is not aware of adjustments, whether in terms of additional
        provisions for inventory, additional provisions for liabilities or other
        adjustments that are, or reasonably could be, of relevance in the
        context of Nice obligation to provide an audit certificate on the
        Completion Accounts of TCS at the Completion Date.

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2.7     Thales confirms that the Accounts Combination Statement has been
        prepared in accordance with the Accounting Principles and further
        confirms that it has reviewed all the consolidation entries that have
        been prepared in order to produce the consolidated accounts of Thales
        (both in terms of the holding company consolidation and any relevant
        consolidations at intermediate holding company level) at 31 December
        2001 and 30 June 2002 and there are no consolidation adjustments,
        whether in terms of additional provisions for inventory, additional
        provisions for liabilities or other adjustments that are, or could
        reasonably be held to be, of relevance in the context of the calculation
        of the NAV Target.


        MANAGEMENT ACCOUNTS


2.8     Attached to the Disclosure Letter are the Management Accounts together
        with the unaudited financial report of TCSA to 30 June 2002.


2.9     The Management Accounts reasonably and fairly represent the profits or
        losses of each of the TCS Group (excluding TCSA) for the five month
        period to 31 May 2002 and the unaudited financial report of TCSA to 30
        June 2002 reasonably and fairly represents the profits or losses of TCSA
        for the six month period to 30 June 2002.


        OPERATION OF THE BUSINESS


2.10    Since the Accounting Date:


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        2.10.1  each of the Companies have carried on the Business in the
                ordinary and usual course with a view to maintaining the same as
                a going concern and without entering into any transaction, or
                assuming any liability which is not in the ordinary and usual
                course of the Business; except as contemplated by or permitted
                by the terms of this Agreement;


        2.10.2  there has been no material interruption or alteration in the
                nature, scope or manner of the business of any of the Companies;


        2.10.3  no substantial customer of or supplier to any of the Companies
                (being a customer or supplier accounting for more than 5% (five
                per cent) of the turnover of the Business for the accounting
                period ending on the Accounting Date) has:


                (a)     indicated that it is likely to cease trading with or
                        supply to any of the Companies;


                (b)     indicated that it is likely to reduce substantially its
                        trading with any of or supplies to the Companies; or


                (c)     indicated that it is likely to change substantially the
                        terms upon which it is prepared to trade with or supply
                        to any of the Companies (other than normal price and
                        minor changes);


        2.10.4  there has been no material increase in the average collection
                periods for the debtors and no material decrease in the payment
                periods for the creditors and each of the Companies have
                continued to pay all creditors

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                and received payments from all debtors in the ordinary course of
                their business consistent with the normal practice of the
                Business;


        2.10.5  none of the Companies have acquired, sold, transferred or
                otherwise disposed of any material assets or cancelled, waived,
                released or discounted in whole or in part any material rights,
                debts or claims of any of the Companies, except in each case in
                the ordinary course of the business of any of the Companies and
                in a manner consistent with prior practice; except as
                contemplated by or permitted by the terms of this Agreement;


        2.10.6  the Companies have not entered into any commitment involving
                capital expenditure on capital account which is still
                outstanding;


        2.10.7  other than changes in the amount of Cumulative Orders of the
                Business in the period 1 January 2002 to 30 June 2002 as
                provided for in clause 7.7 of this Agreement, there has been no
                material adverse change in the financial or trading position or
                (save to the extent that the same would be likely to affect to a
                similar extent generally all companies carrying on similar
                businesses in the United Kingdom, France, Germany or the United
                States) in the prospects of the Business taken as a whole and no
                event, fact or matter has occurred which is likely to give rise
                to any such change;


        2.10.8  no material debtor of the Business has been released by Thales
                or any of the Companies on terms that it pays less than the book
                value of its debt and no material debt owing to Thales or any of
                the Companies in connection with the Business taken as a whole
                has been deferred, subordinated or written off or;


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        2.10.9  no material change has been made in the terms of employment of
                the Employees (other than those required by law);


        2.10.10 no debts or other receivables and no stock, goods, plant,
                machinery or equipment of any of the Companies (in relation to
                the Business) have been factored or sold, or agreed to be sold,
                apart from the sales of finished products in the routine course
                of trading;


        2.10.11 neither Thales or any of the Companies (in relation to the
                Business) have offered material price reductions, discounts or
                allowances on sales of trading stock or services;


        2.10.12 no agreements have been entered into or give effect or
                arrangements put in place to transfer any customers or suppliers
                of the Business to the business of any of Thales or any of the
                Companies;


2.11    The Disclosure Letter incorporates a list of all outstanding guarantees,
        performance bonds, letters of credit or similar instruments given by
        Thales or any of the Companies or any other person in respect of the
        Business.


        GRANTS AND ALLOWANCES


        2.12.1  The Disclosure Letter contains full particulars of all central
                and local government grants, subsidies and allowances which have
                been applied for or received by Thales or any of the Companies
                relating to the Business during the last four (4) years. No such
                grant, subsidy or allowance will become repayable by the
                Purchasers as a result of the sale of the Business.


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<PAGE>

        2.12.2  Neither Thales or any of the Companies has done or failed to do
                any act or thing which could result in all or any part of an
                investment grant or similar payment or allowance made or due to
                be made to it becoming repayable or forfeited by it.


        COMPLIANCE WITH APPLICABLE LAWS


2.13    The Companies have conducted the Business in all material respects in
        accordance with all applicable laws and regulations of the United
        Kingdom or any other jurisdiction in respect of whose laws the Business
        is subject.


2.14    The Companies are not in default in any order, decree or judgment of any
        court or any governmental or regulatory authority (whether in the United
        Kingdom or any other jurisdiction) which applies to the Business.


        US EMBARGO ENTITIES


2.15    Neither Thales or any of the Companies is, in relation to the Business,
        party to any subsisting agreement, obligation or arrangement relating to
        the conduct of Business with any person, entity, governmental body or
        organisation of or in a US Embargo Country.


3       EMPLOYEES


3.1     The Employees are all the employees employed in the Business as at the
        date of this Agreement.

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<PAGE>

3.2     In relation to each Employee there are contained in the Disclosure
        Letter full particulars of:


        3.2.1   any written service or employment agreement or (as appropriate)
                any standard form of particulars of employment applicable and
                issued to Employees;


        3.2.2   each Employee's name, sex, job title, place of work and date of
                commencement of employment (including any employment with a
                previous employer which counts as continuous employment for the
                purposes of any relevant employment legislation in the
                jurisdiction in which the relevant employer is incorporated);


        3.2.3   each Employee's rate of remuneration, bonus and commission, any
                other benefit of any kind to which they are entitled or which is
                regularly provided or made available to Employees and the period
                of notice, entitlement to holidays and holiday bonuses
                applicable to Employees;


        3.2.4   particulars of any collective agreement affecting Employee's
                terms of employment, including disciplinary or grievance
                procedures and any procedures to be followed in the case of
                redundancy or dismissal; and


        3.2.5   details of any other terms and conditions of employment.


3.3     There are no subsisting contracts for the provision by any person of any
        consultancy services to the Companies in connection with the Business.


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<PAGE>


3.4     Save as disclosed in the Disclosure Letter the Companies have no
        profit-sharing, share option or share incentive schemes or other
        employee benefit plans (excluding retirement benefit plans) in relation
        to any Employee.


3.5     Save as disclosed in the Disclosure Letter the Companies have no
        collective bargaining agreements or arrangements with trade unions, or
        employee bodies (whether or not elected), relating to the Employees.


3.6     Thales and/or the Companies are not in connection with the Business
        involved in any industrial or trade dispute or any other dispute or
        negotiation of a material nature with any trade union, body of employees
        or material number of employees.


3.7     Save to the extent (if any) to which provision or allowance has been
        made in the Accounts:


        3.7.1   no liability has been incurred by any of the Companies for
                redundancy payments or for compensation for wrongful or unfair
                dismissal or in relation to the dismissal of any employee of the
                Companies or for failure to comply with any order for the
                reinstatement or re-engagement of any employees or for breach of
                contract or for breach of any other legislative provision; and


        3.7.2   no gratuitous payment has been made or promised by any of the
                Companies in connection with the actual or proposed termination
                or suspension of employment or variation of any contract of
                employment of any present or former director or employee.


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<PAGE>

3.8     No employee of any of the Companies is suffering from any medical
        condition, long term sickness or disability which has necessitated or,
        so far as Thales is aware, is expected to necessitate absence from work
        for a period of eight weeks or longer.


3.9     None of the Employees are on maternity leave on the date of this
        Agreement.


3.10    There is no outstanding or threatened claim or dispute by or with any
        unions or any other body representing all or any of the Employees of any
        of the Companies in relation to their employment by any of the Companies
        nor so far as Thales is aware are there any circumstances likely to give
        rise to any such claim or dispute.


3.11    No change, and no negotiation or request for a change in the emoluments
        or other terms of engagement of any of the Employees is due or would
        ordinarily take place consistent with past practice of the Business
        within six months from the date of this Agreement.


3.12    (a) No Employee of any of the Companies has given or so far as Thales is
        aware is expected to give notice terminating his contract of employment
        nor is under notice of dismissal. (b) So far as Thales is aware no
        Employee has threatened (or is expected to threaten) any litigation,
        arbitration or mediation, administration or criminal proceeding in
        connection with or arising from his employment.


3.13    Thales and the Companies have maintained up-to-date and adequate records
        regarding the employment of the Employees (including, without
        limitation, details of terms of employment, payment of sick pay and
        maternity pay, income tax and social security contributions,
        disciplinary and health and safety matters and adequate records for the
        purposes of the time keeping under relevant legislation).

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<PAGE>

3.14    Thales and the Companies have not borrowed any money from any of the
        Employees and have not made any loans to any of the Employees which have
        not been repaid in full.


3.15    There are no schemes or agreements in operation under which any of the
        Employees is entitled to a bonus, commission or profit related
        remuneration of any kind payable or calculated by reference in whole or
        in part to the turnover, profits, sales or other financial performance
        of the Business, Thales or the Companies or any company connected with
        Thales or the Companies.


3.16    All contracts of service or consultancy or for services with directors
        or employees or other persons providing personal services to the
        Business whether directly or indirectly can be terminated by three
        months' notice or less without giving rise to any claim for damages or
        compensation (other than a statutory redundancy payment or statutory
        compensation for dismissal, if applicable).


3.17    There is no express term of employment for any Employee which provides
        that a sale of the Business shall entitle the Employee to treat such
        sale as amounting to a breach of the contract or entitling him to any
        payment or benefit whatsoever or entitling him to treat himself as
        redundant or otherwise dismissed or released from any obligation.


3.18    Thales and the Companies have no obligation to make any payment on
        redundancy in excess of a statutory redundancy payment and Thales and
        the Companies have not operated any discretionary practice of making any
        such excess payments. Thales and the Companies do not have a written
        redundancy policy.

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<PAGE>

3.19    There is no agreement between Thales and the Companies and an Employee
        with respect to his/her employment, his ceasing to be employed or his
        retirement that is not included in his/her written terms of employment
        or previous employment other than retirement benefits disclosed at
        Schedule 6 and/or the Disclosure Letter.


4       PENSIONS


        In this warranty schedule:

        "PERSONAL PENSION SCHEME" means the personal pension scheme approved for
        the purposes of Chapter IV of Part XIV of ICTA 1988 to which the Thales
        Group makes employer contributions in respect of Mr McKay.

        "APPROVED" means approved by the Inland Revenue for the purposes of
        Chapter 1 of Part XIV of ICTA 1988.


4.1     Save for the Personal Pension Scheme and Thales' Schemes as at the date
        of this Agreement there are not (and never have been any) agreements,
        arrangements, customs or practices (whether legally enforceable or not)
        in operation for the provision of or payment of contributions towards
        any pensions, allowances, lump sums or other like benefits on before or
        after retirement or death or termination of employment (whether
        voluntary or not), or disablement for the benefit of any Employee or an
        Employee's dependants, nor has any proposal been announced or promise
        made to establish any such agreement, arrangement or practice and no
        individual has any contractual entitlement for the provision of
        retirement benefits other than in accordance with the relevant governing
        provisions of the Personal Pension Scheme and Thales' Schemes as
        disclosed to the Purchasers. The Companies have duly complied with all
        applicable legal and administrative requirements relating to stakeholder
        pension schemes (as defined in Section 1(1) of the Welfare Reform and
        Pensions Act

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<PAGE>

        1999) and has disclosed all material details of the pension schemes
        designed by the Companies in relation to the Employees.


4.2     All particulars of each of the Thales' Schemes required to permit the
        Purchasers to form a true and fair view of each of the Thales' Schemes,
        their legal status and the benefits provided or to be provided
        (including contingently) under them for Employees or an Employee's
        dependants have been provided in the Disclosure Letter including for the
        avoidance of doubt:


        4.2.1   a copy of each agreement, deed and all rules governing or
                relating to the Thales' Schemes;


        4.2.2   a copy of each explanatory document of current effect including
                the members' booklet and any announcements issued to an Employee
                who is or may become a member of any of the Thales' Schemes;


        4.2.3   details of the employer and employee contribution rates in
                respect of each of the Thales' Schemes.


4.3     There is attached to the Disclosure Letter a schedule of Employees who
        are members of the Thales' Schemes as at the date of this Agreement.


4.4     No discretion or power has been exercised under any of the Thales'
        Schemes to augment benefits or provide a benefit which would not
        otherwise be provided.


4.5     The life insurance benefit payable under any of the Thales' Schemes
        other than in respect of TCSI and the US Employees on the death of a
        member of any of the

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<PAGE>

        Thales' Schemes is at the date of this Agreement fully insured under a
        policy effected with an insurance company and all insurance premiums
        payable have in respect of that insurance policy been paid.


4.6     No plan, proposal or intention to amend, discontinue (in whole or in
        part) or exercise a discretion in relation to any of the Thales' Schemes
        has been communicated to any member of the Thales' Schemes.


4.7     No amount due in respect of the Personal Pension Scheme or to any of the
        Thales' Schemes in respect of an Employee is unpaid.


4.8     Each of the Thales' Schemes are Approved and each have been designed to
        comply with, and have been administered in accordance with, all
        applicable legal and administrative requirements.


4.9     No assurance, promise or guarantee (oral or written) has been made or
        given to the beneficiary of the Personal Pension Scheme of a particular
        level or amount of benefits to be provided for or in respect of him or
        her under the Personal Pension Scheme on retirement, death or leaving
        employment.


4.10    The Disclosure Letter contains details of the rate at which Thales Group
        has agreed to make employer contributions into the Personal Pension
        Scheme.


        NON-UK PENSION WARRANTIES


        "OVERSEAS EMPLOYEES" has the same meaning as Non-UK Employees.


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<PAGE>

        "OVERSEAS PENSION SCHEMES" means each of: The Thales North American
        Pension Plan, the Thales America 401(k) Plan; the Racal SIP II Plan and
        any other pension scheme or similar arrangement (other than a state
        scheme) to which any of the Overseas Employees make (or have agreed to
        make contributions or other payments).

        "STATE SCHEMES" means each state pension scheme to which any of the
        employers of any of the Overseas Employees are required by law to make
        contributions or payments.


4.11    Save for the Overseas Pension Schemes and the State Schemes, there are
        not (and never have been) any agreements, arrangements, customs or
        practices (whether legally enforceable or not) in operation for the
        provision of or payment of contributions towards any pensions,
        allowances, lump sums or other like benefits on before or after
        retirement or death or termination of employment (whether voluntary or
        not) or disability for the benefit of any Overseas Employee or the
        dependants of such a person, nor has any proposal been announced or
        promise made to establish any such agreement, arrangement or practice
        and no individual has any contractual entitlement for the provision of
        retirement benefits other than in accordance with the relevant governing
        provisions of the Overseas Pension Schemes as disclosed to the
        Purchaser.


4.12    Thales has supplied the Purchaser with copies of all agreements, deeds,
        declarations, insurance contracts and other relevant documents governing
        the Overseas Pension Schemes and an accurate outline description of the
        amount and nature of benefits and the circumstances in which such
        benefits are payable under each of the Overseas Pension Schemes.


4.13    Each of the Overseas Pension Schemes has been designed to comply with
        and has been administered in accordance with all applicable legal and
        regulatory requirements.

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4.14    All amounts which have fallen due for payment by any of the employers of
        any of the Overseas Employees in respect of any of the Overseas Pension
        Schemes or any of the State Schemes have been paid.


4.15    The Purchaser will not have any liability under any of the Overseas
        Pension Schemes upon Completion.


4.16    No assurances or undertakings (whether legally binding or not) have been
        given to any of the Employees as to the continuance or introduction or
        increase or improvement of any retirement, death, sickness or disability
        scheme.


4.17    No assurance, promise or guarantee (oral or written) has been made or
        given to any individual of a particular level or amount of benefits to
        be provided for or in respect of him or her under the Overseas Pension
        Schemes on retirement, death or leaving employment.


5       PROPERTY


5.1     The Business Properties shown in Schedule 3 represent all the freehold
        and leasehold land and premises owned, leased, used or occupied by the
        relevant Company or in which it has an interest.


5.2     The particulars of the Business Properties shown in Part 1 of Schedule 3
        are true, correct and complete in all respects and the relevant Company
        or the relevant Thales Affiliate is the beneficial owner and has good
        and marketable title to the interest set out therein in relation to the
        Business Properties, free from Encumbrances. The Business Properties
        have the benefit of all necessary rights

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        and easements required for the continued use thereof for the purposes of
        the relevant Company, which rights are not subject to any restriction
        limitation or the right of any third party to determine the same.


5.3     No notice of any breach of the covenants, stipulations and conditions
        contained in the Leases of the Business Properties has been received by
        the Thales Properties Limited or the relevant Company and all outgoings
        payable in respect of the Business Properties and invoiced to Thales
        Properties Limited or the relevant Company have been duly paid.


5.4     No notice has been received by Thales, Thales Properties Limited, any
        Thales Affiliate or any of the Companies of any breach of covenant for
        repair and redecoration contained in the Leases of the Business
        Properties and there are no circumstances which will or might entitle
        any landlord or other person to exercise any powers of entry or to take
        possession thereof or which would otherwise restrict or terminate the
        continued possession and quiet enjoyment thereof for the purposes of the
        business of the relevant Company as presently carried on.


5.5     There are no covenants, restrictions, stipulations, easements or quasi
        easements or privileges affecting the Business Properties or any part
        thereof which are of an unduly onerous nature or which conflict with the
        present user thereof or which would affect the use or continued use
        thereof for the purposes of the business of any of the Companies nor are
        there any rights, easements or privileges in the continued existence of
        which is doubtful or uncertain as the withdrawal or cessation of which
        would affect the use or continued use of the Business Properties for the
        purposes of the Business.


5.6     So far as is necessary for the continued use thereof for the purposes of
        the business of any of the Companies to the extent or in the manner in
        which it is now used the Business Properties and the use thereof for the
        purposes of the

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<PAGE>

        business carried on by any of the Companies comply in all material
        respects with all applicable laws, ordinances, rules, regulations and
        requirements including without limitation those relating to planning and
        fire precautions and all building laws and by-laws affecting the same
        and all applicable statutory and by-laws as to fire precautions, public
        health, the environment or otherwise.


5.7     No notice, action or proceedings affecting the Business Properties has
        been served or commenced by any person and there are no facts known to
        Thales, Thales Properties Limited and the relevant Trade Affiliates
        which are likely to result in any such notice, action or process being
        served or commenced.


5.8     The Business Properties are not affected by any of the following
        matters:


        5.8.1   any closing order, demolition order or clearance order; or


        5.8.2   any enforcement notice which has not been complied with; or


        5.8.3   any order or proposal for the compulsory acquisition or
                requisition of the whole or part thereof or the modification of
                any planning permission or discontinuance of any use of the
                removal of any building on the Business Properties; or


        5.8.4   any agreement with any planning authority statutory undertaking
                or other public body or authority regarding the use or
                development thereof.


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5.9     There are no outstanding disputes between any of the Companies, Thales
        Properties Limited or any Thales Affiliate and any person or entity
        relating to the Business Properties or their use.


5.10    The Companies have in their possession or under their control all deeds
        and documents relating to the Business Properties relevant to the
        interest of the Companies in the Business Properties.


5.11    The Business Properties are in a reasonable state of repair and
        condition having regard to the age of the Business Properties.


5.12    The replies given to enquiries raised by the Purchaser's Solicitors in
        respect of the Business Properties are true and correct in all material
        respects.


6       ASSETS


6.1     Each of the Assets other than any Intellectual Property Rights (subject,
        in the case of the Inventory, to retention of title where applicable)
        are:


        6.1.1   legally and beneficially owned by Thales and each of the
                Companies free from Encumbrances;


        6.1.2   not the subject of any hire purchase, leasing, lease purchase or
                credit-sale agreements, agreements for conditional sale or sale
                by instalments;


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<PAGE>

        6.1.3   not subject to any agreement or commitment entered into by
                Thales and each of the Companies to give or create any of the
                interests described in 6.1.2 above and; and


        6.1.4   in the possession of or under the control of Thales or one of
                the Companies.


6.2     All of the fixed and movable plant, machinery, vehicles, office,
        warehouse and factory equipment, furniture and furnishings used in the
        Business are in reasonable repair having regard to their age and are
        capable of being used either for the purpose for which they were
        acquired or for the purpose for which they are now used by any of the
        Companies.


6.3     All of the raw materials, work in progress, parts and components and
        finished goods of Thales or one of the Companies are of a quality usable
        in the ordinary course of business except for obsolete and slow moving
        items that are provided for in the Accounts.


6.4     The fixed asset registers of the Companies provide a complete and
        accurate record of all plant, machinery, equipment and vehicles owned by
        Thales and the Companies and used in respect of the Business.


7       CONTRACTS

7.1     The Disclosure Letter contains:

        7.1.1   copies of:

                (a)     Contracts within category (c) of the "Contracts"
                        definition;

                (b)     all contracts, engagements or orders entered into by any
                        of the Companies with customers for the sale of goods or
                        the supply

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<PAGE>

                        of services in connection with the Business which remain
                        to be performed in whole or in part having value in
                        excess of (pound)500,000 (or (US$500,000 in respect of
                        any such contract in US dollars); anD

                (c)     all other material Contracts;

                that remain to be performed (in whole or in part) by the
                Company; and


        7.1.2   a list of all other Contracts within the categories (a), (b) and
                (f) of the "Contracts" definition that remain to be performed
                (in whole or in part) by the Company.

7.2     The contracts currently subsisting relating to the Business to which
        Thales or any of the Companies is a party do not include:


        7.2.1   any contract for the purchase or use by Thales or any of the
                Companies of materials, supplies or equipment which is in excess
                of the requirements of Thales or any of the Companies for the
                normal operating purposes of the Business;


        7.2.2   any unusual or unusually onerous contract;


        7.2.3   any contract that cannot be terminated without penalty or
                compensation on 12 months' notice or less;


        7.2.4   any contract restricting the freedom of action of any of Thales
                or any of the Companies in relation to the normal Business
                activities or in relation to the territory in which the Business
                is conducted;

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<PAGE>


        7.2.5   any contract not made in the ordinary course of the Business;


        7.2.6   any contract which by virtue of the acquisition of the Business
                by the Purchasers will result in:


                (a)     any other party being by virtue of the terms of such
                        contract relieved of any obligation or entitled to
                        exercise any right (including any right of termination,
                        any consent to assignment or any right of pre-emption or
                        other option); or


                (b)     Thales or any of the Companies being in default under
                        any such agreement or arrangement or in a liability or
                        obligation of Thales or any of the Companies being
                        created or increased;


        7.2.7   any contract which was entered into otherwise than by way of
                bargain at arm's length;


        7.2.8   any contract which establishes any joint venture, consortium,
                partnership or profit (or loss) sharing agreement or
                arrangement;



        7.2.9   any contract which contains any liability (present or future)
                under any financial or performance guarantee or indemnity or
                letter of credit;


7.3     Each contract to which the Thales or any of the Companies are now a
        party is valid and subsisting and there is no subsisting breach of any
        thereof which could lead to a claim for compensation, damages, specific
        performance or an injunction being made against Thales or any of the
        Companies or which could entitle a third

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<PAGE>

        party to call in any moneys before the normal due date thereof which
        will in any such case materially and adversely affect the Business.


7.4     No party with whom Thales or any of the Companies have entered into any
        contract or arrangement is in default thereunder being a default which
        would have a material and adverse effect on the financial or trading
        position of the Business.


7.5     With respect to each of the contracts currently subsisting to which
        Thales and/or each of the Companies is a party in connection with the
        Business:


        7.5.1   Thales and/or each of the Companies has not received any notice
                of termination;


        7.5.2   the Companies have the technical and other capabilities and the
                human and material resources (including Inventory and
                promotional materials) to enable it to fulfil, perform and
                discharge all its outstanding obligations in the ordinary
                course.


7.6     The Disclosure Letter contains details of all subsisting arrangements,
        trading or otherwise, between the Companies and Thales or any Thales
        Affiliate.


7.7     Neither Thales nor any of the Companies (in relation to the Business)
        has outstanding any bid or tender or sale or service proposal which is
        substantial in relation to the Business or which has been issued in
        expectation of a loss following acceptance.

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7.8     No guarantee, indemnity, warranty or representation has been given to
        any customer in respect of goods or services supplied which would
        operate to extend the guarantee or warranty implied by law or contained
        in Thales' standard terms of business (a copy of which is attached to
        the Disclosure Letter).


MANUFACTURING AGREEMENT WITH INSTEM TECHNOLOGIES LIMITED


7.9     The copies of the documents contained in the Disclosure Documents in
        respect of the arrangements with Instem Technologies Limited constitute
        the entire agreement between the Companies and Instem Technologies
        Limited in connection with the Business.


7.10    There is no conflict between the rights granted by TCSL to Instem
        Technologies Limited and the rights granted by TCSL to each of Coppice
        Developments Limited and Precision Applications Limited.


        DISTRIBUTION AGREEMENTS


7.11    The Companies do not make any direct sales to end customers (i.e. sales
        which are not made indirectly, for example, through a distributor)
        except as disclosed.


7.12    Except as disclosed, the Companies have not entered into any exclusive
        distribution agreements with any person


7.13    The Companies have not granted any conflicting rights to different
        persons under the terms of any exclusive distribution, representative or
        agency arrangements,

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        and in particular, exclusive distribution rights have not been granted
        to more than one person in respect of the same territory or products.


7.14    None of the Companies' agreements with third parties grant distribution
        rights in respect of any products other than products which are sold by
        the Companies in connection with the Business.


        RELATIONSHIPS WITH IBM


7.15    The Companies have in place maintenance and service contracts with
        customers which generate sufficient income for TCSL to cover their
        payment obligations to IBM (UK Limited ("IBM") under all of the
        arrangements of TCSL with IBM.


7.16    The copies of the documents contained in the Disclosure Documents in
        respect of the arrangements with IBM constitute the entire agreement
        between the Companies and IBM in connection with the Business.


8       INTELLECTUAL PROPERTY


8.1     The Disclosure Letter and Schedule 7 contain true and accurate lists of
        all material Business IPR in any jurisdiction which are held or
        beneficially owned by the Companies. The Companies are the sole legal
        and beneficial owners of all Business IPR save as disclosed in the
        Disclosure Letter or Schedule 7.


8.2     The Disclosure Letter contains a true and accurate list of all material
        licensing or sub-licensing agreements or arrangements under which the
        Companies have the use of the Intellectual Property Rights of a third
        party for the purposes of the Business, and copies of such licences are
        included in the Disclosure Documents. No member of the Thales Group
        which is party to any such agreements or arrangements is in breach
        thereof and so far as Thales is aware no other party to such agreements
        or arrangements is in breach thereof.

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8.3     So far as Thales is aware, no act has been done or omitted to be done
        and no event has occurred or is likely to occur which may render any
        registered or registrable Business IPR subject to revocation, compulsory
        licence, cancellation or amendment or may prevent the grant or
        registration of a valid registered or registrable Intellectual Property
        Right pursuant to a pending application.


8.4     The Disclosure Letter contains a true and accurate list of all material
        agreements or arrangements under which any member of the Thales Group
        has granted to any other person any license, or other right in relation
        to the Business IPR and of all Contracts falling within (d) of the
        definition of Contracts.


8.5     None of (a) the products or systems developed by or for the Companies or
        used exclusively in the Business and which embody the use of the
        Business IPR and which are used in or offered for sale or licensed by
        the Business at Completion; or (b) the Prism Product; or (c) the Wordnet
        3 product as it exists at Completion; or (d) so far as Thales is aware
        no other part of the Business currently carried on by the Companies,
        infringes any Intellectual Property Rights of any other person or
        involves the unauthorised use of confidential information and so far as
        Thales is aware no member of the Thales Group has received any notice of
        any alleged infringement of the Intellectual Property Rights of any
        third party in relation to the Business and, save as set out in the
        Disclosure Letter, so far as Thales is aware no member of the Thales
        Group is aware of any circumstances (including any act or omission to
        act) likely to give rise to such a claim.


8.6     No Business IPR and no benefit of use of Intellectual Property Rights
        which are the subject of a Contract falling within (e) of the definition
        of Contract will be lost,

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        or rendered liable to any right of termination or cessation by any third
        party, by virtue of the acquisition by the Purchasers of the Business,
        save as stated in the Disclosure Letter.


8.7     So far as Thales is aware, there exists no actual or threatened
        infringement by any third party of Business IPR (including misuse of
        confidential information) or any event likely to constitute such an
        infringement nor has Thales (or any member of the Thales Group)
        acquiesced in the unauthorised use by any third party of any Business
        IPR.


8.8     So far as Thales is aware, no claims have been made or threatened in
        writing by employees or ex-employees of the Business under any statutory
        inventor compensation provision, or like employee compensation
        provision, in any jurisdiction, and no employee or previous employee of
        the Thales Group who in the case of his or her employment created,
        disclosed or developed work in which Intellectual Property Rights
        subsist have any ownership of, or rights to, such Intellectual Property
        Rights in relation to the Business IPR.


8.9     Neither the Business IPR , nor so far as Thales is aware any other
        Material IPR are subject to any Encumbrance. The interest of Thales
        under any contract in respect of Business IPR or Material IPR is not
        subject to any Encumbrance and so far as Thales is aware the interest of
        any other party under any such contract is not subject to any
        Encumbrance.


8.10    All renewal fees required for the maintenance of the Business IPR have
        been paid.


8.11    None of the Business IPR or, so far as Thales is aware, other Material
        IPR are the subject of any litigation, opposition, arbitration,
        mediation or administrative or

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        criminal proceedings and no such proceedings are so far as Thales is
        aware, threatened in writing.


8.12    The Business IPR, together with the Intellectual Property Rights which
        are the subject of a Contract falling within (e) of the definition of
        Contract as so licensed under such Contracts, are adequate to carry on
        the Business in the manner currently carried on and to fulfil its
        existing contracts save to the extent that the Purchasers need to
        replace the Excluded Trade Marks.


8.13    Save as set out in the Disclosure Letter, no member of the Thales Group
        other than the Companies uses any Business IPR.


8.14    Thales warrants that:

        (a)     the software licensed by Funk Software Inc. to TCSL is not used
                in the Business as carried on at Completion and has not been
                used in the Business in the 12 months immediately preceding
                Completion;

        (b)     TCSL is the absolute legal and beneficial owner of the
                Intellectual Property Rights in the elements of the "Tienna" and
                "Renaissance" products except for the Tienna "SS7" signaling
                protocol owned by Natural MicroSystems Corporation ("Natural");

        (c)     Natural and members of its group are not developing as at the
                date of Completion and have not in the 12 months immediately
                preceding Completion been contracted to develop any products or
                Intellectual Property Rights for use in the Business other than
                that described in paragraph (b) above;

        (d)     the software developed by Cliffstone for TCSL which related to
                TCSL's "Agent Quality Thales 3" product is not used in the
                Business as carried on at Completion and has not been used in
                the Business in the 12 months immediately preceding Completion;

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        (e)     other than as listed in the French Disclosure Letter and the
                German Disclosure Letter, TCSA and TCS GmbH do not own any other
                Intellectual Property Rights and no products or processes have
                been made available to any persons which incorporate any TCSA or
                TCS GmbH Intellectual Property Rights and none of the Companies
                are legally bound to make such products or processes available;
                and

        (f)     no distributors, resellers (or other third party who has entered
                into an agreement with the Companies for the supply of Business
                products to end-users) of the Companies have made any
                modifications to any products in respect of which they have been
                granted distributor or reseller rights by the Companies.

        (g)     All Intellectual Property Rights which are disclosed under the
                French Disclosure Letter and the German Disclosure Letter have
                been created by employees of, and are owned by, TCSA and TCS
                GmbH.

        (h)     The Cross Patents Licence Agreements do not impose any ongoing
                obligations on the Purchasers other than an obligation not to
                derogate from the grant of a non-exclusive licence of any
                patents being transferred to the Purchasers pursuant to this
                Agreement to Alcatel in the field of civil telecommunications
                and Thomson Multimedia in the field of multimedia on electronics
                consumer products broadcast and network equipment.


9       INFORMATION TECHNOLOGY

9.1     A list of the Information Technology used by the Business and by each
        Company and all agreements, arrangements or understandings relating to
        the maintenance, development, support, security, disaster recovery,
        management and utilisation of the Information Technology used by the
        Business (including software licences, escrow agreements relating to the
        deposit of sources codes, facilities management and computer bureau
        services agreements) are disclosed in the Disclosure Letter.

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9.2     There are no material defects relating to the Information Technology
        used by the Business and the Information Technology used by the Business
        has the capacity and performance necessary to fulfil the present
        requirements of the Business.

9.3     No Company and no member of the Thales Group has disclosed to any third
        party any source code or algorithms relating to any software owned
        (either solely or jointly) by any of the Companies or by any member of
        the Thales Group in relation to the Business.

9.4     Details of any domain name, other than a domain name falling within the
        Excluded Trademarks, registered by any of the Companies or by any member
        of the Thales Group in connection with the Business are disclosed in the
        Disclosure Letter.

9.5     In the three years prior to the Completion Date there has been no bug,
        breakdown or virus affecting the Information Technology used (in
        relation to the Business) which has caused any material disruption to
        the Business.

10      CONFIDENTIAL INFORMATION

10.1    No disclosure has been made of any confidential information of the
        Companies in connection with the Business save in the ordinary course of
        business and upon the Companies having taken appropriate steps to secure
        the confidential nature of any such disclosure or as a result of
        publication which follows the filing of a patent application. Thales or
        the Companies are not aware of any material breach of such
        confidentiality obligations by any third party.

10.2    The Companies are not a party to any contract or arrangement under which
        it is or may be under obligation to make any disclosure of confidential
        information of the Companies in connection with the Business save in the
        ordinary course of business and upon the Companies having taken
        appropriate steps to secure the confidential nature of any such
        disclosure.


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11      INSURANCE


11.1    Thales and each of the Companies have maintained insurance cover in
        respect of the Business against risks normally insured against by
        companies carrying on a similar business, and in particular have
        maintained all insurance required by statute and product liability and
        environmental impairment liability insurance.


11.2    The Disclosure Letter contains particulars of all insurances maintained
        for the benefit of the Business. Such insurances are in full force and
        effect, all premiums in respect of the insurances maintained in respect
        of the Business have been paid when due and no such insurance policies
        have lapsed and the Companies have not committed any act or omitted to
        do anything which would render such insurances void or invalid or
        increase the premiums payable or affect the level or type of cover
        provided by such insurances.


11.3    There is no claim outstanding by Thales or any of the Companies under
        any of the Companies insurance policies relating to the Business or the
        Assets, nor are Thales or the Companies aware of any circumstances
        likely to give rise to such a claim.


12      PRODUCT LIABILITY

12.1    None of the Companies have, within the previous 18 months, received any
        claim from any third party relating to any product or service of the
        Business manufactured, sold or supplied which, was in any material
        respect, defective, other than defects which are covered in the ordinary
        course of business by any warranties or representations expressly given
        or implied by law in respect of the sale or supply of any such product.

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12.2    TCSL has not received a prohibition notice, a notice to warn or a
        suspension notice under the Consumer Protection Act 1987.


12.3    TCS GmbH has not received a prohibition notice, a notice to warn or a
        suspension notice under the German Product Liability Act
        ("Produkthaftungsgesetz").


12.4    TCSA has not received a prohibition notice, a notice to warn or a
        suspension notice under the relevant French law or other rules and
        regulations promulgated by local governmental authorities.


12.5    TCS Inc. has not received save as disclosed in the Disclosure Letter,
        any notice or other written communication from any US federal, state or
        local governmental authorities or administrative agency or body, or from
        any industry or standards-setting body, alleging any deficiencies in, or
        proposing to investigate or recall, any product or service of the
        Business sold or licensed or offered for sale or license in the United
        States.


13      LITIGATION


13.1    None of the Companies nor any person for whose acts or defaults any of
        the Companies may be vicariously liable are engaged whether as plaintiff
        or defendant or otherwise in any civil, criminal or arbitration
        proceedings or any proceedings before any tribunal (save for debt
        collection by each of the Companies in the ordinary course of the
        business for amounts which are not material) in connection with the
        Business and save as disclosed in the Disclosure Letter, so far as
        Thales is aware there are no proceedings threatened, pending or expected
        against any of the Companies and save as disclosed in the Disclosure
        Letter, neither Thales nor the Companies are aware of any facts or

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        circumstances which are likely to give rise to such litigation or
        arbitration, administrative or criminal proceedings or to any
        proceedings against a director or employee (past or present) of Thales
        or any of the Companies in respect of any act or default for which
        Thales or any of the Companies might be vicariously liable in connection
        with the Business.


13.2    So far as Thales is aware neither Thales nor any of the Companies are
        the subject of any official or governmental investigation or enquiry in
        respect of the affairs of Thales or any of the Companies in connection
        with the Business and no such investigations or enquiries are pending or
        expressly threatened against Thales or any of the Companies nor is
        Thales aware of any circumstances likely to lead to any such
        investigation or enquiry.


13.3     There is no order or judgment of any court or any governmental
         authority outstanding against Thales or any of the Companies in
         connection with the Business.


14      CONDUCT OF BUSINESS


        Neither Thales nor any of the Companies have done or omitted to do
        anything in breach of any relevant law, statutory requirement, by laws
        or regulations applicable to the conduct of the Business where such
        contravention would have a material adverse effect on the continued
        operation of the Business after Completion.


15      LICENCES AND CONSENTS


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15.1    All necessary licences, consents, permits, approvals, authorities
        (public and private) for or in connection with carrying on the Business
        now carried on by each of Thales or the Companies are listed in the
        Disclosure Letter and have been obtained by Thales and/or the Companies
        to enable each of the Companies to carry on the Business lawfully in the
        places and in the manner in which the Business is now carried on and all
        such licences, consents, permits, approvals and authorities are valid
        and subsisting and are not subject to any unusual or unusually onerous
        conditions having a material effect on the conduct of the Business and
        have been complied with in all material respects, no written notice has
        been received regarding any breach and none of the Companies are in
        material breach of any of the same nor so far as Thales is aware are
        there any circumstances which indicate that any material licence,
        consent, permission or approval is likely to be revoked. This warranty
        does not cover any licences, consents, permits, approvals or authorities
        which are contained in any of the contracts and are the subject of
        separate warranties above.


15.2    To the best knowledge of Thales and the Companies, none of the licences,
        permissions, authorisations or consents referred to in paragraph 15.1
        above contain a right for the other party to revoke or not renew, in
        whole or in part, such licences, permissions, authorisations or consents
        as a result of the acquisition of the Business.


16      ENVIRONMENTAL AND HEALTH


16.1    Thales and each of the Companies in relation to the Business and the
        Business Properties have complied at all times and in all respects with
        Environmental Law and there are and have been no acts or omissions of
        any of Thales or any of the Companies in relation to the Business,
        Business Properties and Environmental Matters which could give rise to
        fines, penalties, losses, damages, costs, expenses or liabilities or
        could require any Works.

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16.2    All Environmental Permits (if applicable) have been obtained and are in
        full force and effect, and no material operating or capital expenditure
        is required or proposed in relation to Environmental Matters under any
        such Environmental Permits.


16.3    So far as Thales is aware, no Environmental Matters exist or have arisen
        at or about any of the Business Properties which could give rise to any
        fines, penalties, losses, damages, costs, expenses or liabilities or
        could require Works. So far as Thales and each of the Companies are
        aware, no such matters are likely to arise.


16.4    Thales nor any of the Companies in relation to the Business or in
        relation to the Business Properties is or have been involved in any
        litigation proceedings, claim or complaint by any person under
        Environmental Laws, and so far as Thales is aware none is threatened and
        none is likely to arise. Thales, has not received any notice of
        communication or information alleging any liability in relation to
        Environmental Matters or that any Works are required or stating or
        suggesting that there is or might be any pollution, contamination or
        nuisance at or from any Business Property.


16.5    Neither Thales nor any of the Companies has any liability in respect of
        Environmental Matters under any contract or other agreement relating to
        the sale or other disposal or grant of any interest or rights in
        relation to any shares, land or other assets.

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17      TAXATION MATTERS


17.1    Neither Thales nor any of the Companies is involved in any dispute with
        any Tax Authority concerning any matter in any way affecting either the
        Business or any of the Assets to be transferred under this Agreement.


17.2    The Disclosure Letter sets out details of any investigation (including
        the consequences thereof but ignoring routine inspections) by any Tax
        Authority within six years prior to the date hereof into or affecting
        the payment of Taxation in respect of the Business and of any disputes
        with any Taxation authority in relation to Taxation matters relating to
        the Business.


17.3    The Disclosure Letter sets out details of any payments made or due to or
        by Thales or any of the Companies in relation to the Business in respect
        of which either Thales or any of the Companies or the payer is under an
        obligation to deduct Tax or would be under such an obligation but for a
        written authorisation issued by any Tax Authority permitting payment
        without such deduction.


17.4    There is no reason why any part of the price payable by the Purchaser
        that is apportioned under this Agreement to those of the Assets which
        are plant or machinery for the purposes of Part II of the Capital
        Allowances Act 2001 should not, assuming such apportioned price
        represents capital expenditure incurred for the purposes of the
        Purchaser's trade, qualify in full for writing down allowances; none of
        such Assets are leased (as in the meaning of section 105 of such Act);
        and Thales accepts that no election may be made in respect of any of
        such Assets pursuant to section 266 of such Act.

17.5    In respect of any Assets which are plant and machinery for the purposes
        of Part II of the Capital Allowances Act 2001 and which are fixtures (as
        defined in section 173(1) of the Capital Allowances Act 2001) at
        Completion either (a) no person

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        has been or will have become entitled to allowances in respect of any
        Expenditure incurred on the provision of the fixture or, (b) if any
        person has become so entitled that person has been, is or will be
        required to bring the disposal receipts in respect of the fixture into
        account under section 55 of the Capital Allowances Act 2001.


17.6    None of the Contracts, other than any relating to the acquisition of the
        Assets, involve any future liabilities which when incurred will not be
        deductible in computing profits for Tax purposes.


17.7    No Tax Authority has agreed to operate any special arrangement (being an
        arrangement which is not based on a strict application of the relevant
        legislation) in relation to the Business, whether in respect of benefits
        provided to its officers or employees, the valuation of its stock, the
        depreciation of its assets or any administrative or other matter
        whatsoever.


17.8    None of the Assets are wasting assets within section 44 of the Taxation
        of Chargeable Gains Act 1992 which do not qualify for capital
        allowances.


17.9    Thales and the Companies have properly operated the PAYE system or
        equivalent system in any relevant jurisdiction deducting income tax and
        national insurance contributions (and any other social security
        contribution) as required from all payments to, or treated as made to,
        the Employees (and has deducted all amounts which are required to be
        deducted from wages, salaries or other benefits) and has punctually
        accounted to the relevant Tax Authority for all amounts of Tax and
        national insurance contributions (and any other social security
        contribution) due to them.


17.10   Proper records have been maintained by Thales and the Companies in
        respect of all PAYE (or equivalent system in any relevant jurisdiction)
        and national insurance contributions (and any other social security
        contribution) deductions and/or payments.

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17.11   Thales and the Companies have maintained and obtained accounts, records,
        invoices and other documents (as the case may be) appropriate or
        requisite for the purposes of VAT arising in respect of the Business
        which are complete, correct and up-to-date.


17.12   Neither Thales nor any of the Companies is liable to any abnormal or any
        non-routine payment, or any forfeiture, penalty, interest or surcharge,
        or to the operation of any penal provision, in relation to VAT.


17.13   Neither Thales nor any of the Companies has been required to give
        security to any Tax Authority for payment of VAT.


17.14   The Disclosure Letter sets out details of any investigation (including
        the consequences thereof) by any Tax Authority within six years prior to
        the date hereof into or affecting the payment of VAT in respect of the
        Business.


17.15    None of the Assets are chargeable assets of a business which, if
         transferred to a body corporate treated as a member of a group under
         section 43 of the VATA as a going concern, would give rise to a
         liability on that body corporate or the representative member of the
         group of which that body corporate is a member under section 44 of the
         VATA.

17.16   All documents in the possession or under the control of Thales or any of
        the Companies which establish or are necessary to establish the title of
        Thales or any of the Companies to the Assets have been duly stamped and
        any applicable stamp duties or charges in respect of such documents have
        been duly accounted

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        for and paid, and no such documents which are outside the United Kingdom
        would attract stamp duty if they were brought in to the United Kingdom.


17.17   Thales and the Companies have complied with all applicable Taxation laws
        and regulations relating to the Business and/or the Assets of any
        jurisdiction in respect of whose Taxation laws and regulations the
        Business and/or the Assets is subject where non-compliance could result
        in the Purchaser or any of its subsidiaries being required to pay
        Taxation which it would otherwise not be required to pay.


18      RECORDS ETC.


18.1    All the books, records and systems (including but not limited to
        computer systems) and all data and information relating to the Business
        have been adequately maintained or operated or otherwise held by Thales
        or the Companies at all times and such Books and Records have been
        retained by the Companies for such periods as may be required by the
        relevant law of the jurisdiction in which the Companies are
        incorporated.


18.2    Save as disclosed in the Disclosure Letter, none of the records,
        systems, controls, data or other information of each of the Companies in
        connection with the Business is recorded, stored, maintained, operated
        or otherwise dependent upon or held by any means (including any
        electronic, mechanical or photographic process whether computerised or
        not) which (including all means of access thereto and therefrom) are not
        under the exclusive ownership and direct control of any of the
        Companies.


18.3    None of the Companies, or, to the knowledge of Thales, any of the
        respective officers or directors of the Companies, is presently (I)
        using any funds of the

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        Companies for any unlawful contribution, endorsement, gift,
        entertainment or other unlawful expense relating to political activity;
        (ii) making any direct or indirect unlawful payment to any foreign or
        domestic regulatory body official or employee from any funds of the
        Companies, or (iii) making any bribe, unlawful payoff, influence
        payment, "kickback" or other unlawful payment to any person with respect
        to the Business.


19      INSOLVENCY


19.1    No order has been made and no resolution has been passed for the winding
        up of Thales or any of the Companies or for a provisional liquidator to
        be appointed in respect of Thales or any of the Companies and no
        petition has been prepared and no meeting has been convened for the
        purpose of winding up of Thales or any of the Companies.


19.2    No administration order has been made and no petition for such an order
        has been presented in respect of any of Thales or any of the Companies.


19.3    No receiver (which expression shall include an administrative receiver)
        has been appointed in respect of Thales or any of the Companies or all
        or any of the assets of Thales or any of the Companies.


19.4    Neither Thales nor any of the Companies is insolvent, or unable to pay
        its debts within the meaning of section 123 Insolvency Act 1986.


19.5    No voluntary arrangement has been proposed under section 1 Insolvency
        Act 1986 in respect of Thales or any of the Companies.

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19.6    No bankruptcy order has been made in respect of any of Thales or any of
        the Companies or a petition for such an order presented.


19.7    No application has been made in respect of Thales or any of the
        Companies for an interim order under section 253 Insolvency Act 1986.


19.8    Neither Thales nor any of the Companies are unable to pay or to have no
        reasonable prospect of being able to pay any debts as those expressions
        are defined in section 268 Insolvency Act 1986.


19.9    No event in respect of any of the Companies or the Business has occurred
        in any of the jurisdictions in which the Business is conducted analagous
        with any of the events specified in the foregoing sub-paragraphs of this
        paragraph 19.


20      COMMISSIONS ETC.


        Save as disclosed in the Disclosure Letter, no commissions, introductory
        fees, bonuses or other payments or gifts having a monetary value have
        been paid or made available or agreed to be paid or made available by
        Thales or any of the Companies to any person, firm or company in
        relation to any transaction implemented under or contemplated in this
        Agreement.


21      COMPETITION AND FAIR TRADING LAWS


21.1    Neither Thales nor any of the Companies, in relation to the business,
        has done anything which contravenes or is likely to contravene, requires
        notification or is, or is likely to be, or has been the subject of any
        enquiry, complaint, investigation or proceeding under any of the
        provisions of the Fair Trading Act 1973, the EC

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        Treaty, the Competition Act 1980 or the Competition Act 1998 or any
        other competition, anti-trust, anti-monopoly or anti-cartel legislation
        or regulation in any country of the world in which or with which it does
        business. Furthermore, Neither Thales nor any of the Companies is a
        member or party to any agreement or arrangement which required
        registration under the Restrictive Trade Practices Acts 1976 and 1977.


21.2    Neither Thales nor any of the Companies have in relation to the
        Business, received any process, notice or other communication (formal or
        informal) by or on behalf of the Office of Fair Trading (whether under
        the Fair Trading Act 1973, the Competition Act 1980, the Competition Act
        1998 or otherwise), the Competition Commission, the Secretary of State
        for Trade and Industry, the Commission of the European Communities, the
        EFTA Surveillance Authority, the US Fair Trade Commission or any other
        authority having jurisdiction in competition matters in relation to any
        aspect of the Business or any agreement, arrangement, concerted practice
        or course of conduct to which either Thales or any of the Companies is,
        or is alleged to be, a party in relation to the Business.


21.3    Neither Thales nor any of the Companies are involved in any practice or
        agreement as a result of which it is likely to receive any such process,
        notice or communication as is referred to in paragraph 21.2 above.


21.4    Neither Thales nor any of the Companies are subject to any order or
        judgment given by any court or governmental or regulatory authority, or
        party to any undertaking or assurance given to any such court authority,
        in relation to competition matters which is still in force.


21.5    Neither Thales nor any of the Companies have been in receipt of any aid
        which would be construed as falling within Article 87(1) of the EC
        Treaty and is not

                                      208
<PAGE>

        aware of any pending or threatened investigation, complaint, action or
        decision in relation to the receipt or alleged receipt by it of any aid
        or alleged aid.


22      INVESTMENT REPRESENTATIONS


22.1    In evaluating the suitability of an investment in the Nice Shares, no
        member of the Thales Group has relied upon any representations or other
        information (whether written or oral) from Nice, other than the
        representations and warranties contained herein and upon investigations
        made by it in making the decision to invest in Nice.


22.2    Each member of the Thales Group is aware that an investment in Nice
        involves a high degree of risk.


22.3    Each member of the Thales Group acknowledges that any information
        furnished by Nice does not constitute investment, accounting, tax or
        legal advice. Moreover, such person is not relying upon any information
        furnished by Nice with respect to such person's tax and other economic
        considerations in connection with its investment in Nice. In regard to
        the Tax and other economic considerations related to such investment,
        each member of the Thales Group has relied on the advice of, or has
        consulted with, only its own professional advisors.


22.4    Each member of the Thales Group is aware that the Nice Shares are being
        offered and sold by means of an exemption under the Securities Act and
        exemptions under certain United States state securities laws for
        non-public offerings and under the Israel Securities Law and regulations
        promulgated thereunder and that each member of the Thales Group makes
        the representations, declarations and warranties as contained in this
        Section 22 with the intent that the same shall be relied upon by Nice in
        determining its suitability as a purchaser of such securities.

                                      209
<PAGE>

22.5    Each member of the Thales Group is aware that it cannot sell or
        otherwise transfer the Nice Shares without registration under the
        Securities Act and applicable state securities laws or without an
        exemption therefrom, and that certain restrictions apply to trading the
        Nice Shares in Israel under the Israel Securities Law and regulations
        promulgated thereunder and is aware that it will be required to bear the
        financial risks of its purchase for an indefinite period of time
        because, among other reasons, such securities have not been registered
        with any regulatory body of any state of the United States and,
        therefore, cannot be transferred or resold unless subsequently
        registered under applicable state securities laws or an exemption from
        such registration is available. Each member of the Thales Group also
        understands that except as provided for under the Registration Rights
        Agreement, Nice is under no obligation to register the resale by any
        member of the Thales Group of Nice Shares or to assist it in complying
        with any exemption from registration under applicable United States
        federal or state securities laws or under the Israel Securities Law and
        regulations promulgated thereunder.


22.6    Each member of the Thales Group recognises that no regulatory body has
        recommended or endorsed the purchase of the Nice Shares or passed upon
        the adequacy or accuracy of the information set forth herein, and that
        Nice is relying on the truth and accuracy of the representations,
        declarations and warranties made by each member of the Thales Group as
        contained herein in selling the Nice Shares.


22.7    Each member of the Thales Group has at all times been given the
        opportunity to obtain additional information, to verify the accuracy of
        the information received and to ask questions of and receive answers
        from certain representatives of Nice concerning the terms and conditions
        of each member of the Thales Group's investment in Nice and the nature
        and prospects of Nice's business.

                                      210
<PAGE>

22.8    Each member of the Thales Group further acknowledges that the
        transferability of the Nice Shares shall also be restricted by the
        contractual "lock-up" provisions contained in this Agreement. Thus, each
        member of the Thales Group realises that it cannot expect to be able to
        liquidate its investment in Nice readily or at all in case of an
        emergency.


22.9    Each member of the Thales Group is acquiring the Nice Shares for
        investment purposes, for its own account and not with a view to or in
        connection with any public distribution or resale of such securities to
        or for the accounts of others.


22.10   Each member of the Thales Group understands and agrees that a
        restrictive legend will be placed on all certificates representing the
        Nice Shares.


                                      211
<PAGE>

                                     PART 2

                             PURCHASERS' WARRANTIES



1       Each of the Purchasers have the requisite corporate power to execute,
        deliver and perform, and have taken all necessary corporate or other
        action to authorise the execution, delivery and performance of this
        Agreement. This Agreement will constitute legal, valid and binding
        obligations of the Purchasers enforceable in accordance with its terms.


2       The execution and delivery of, and the performance by the Purchasers of
        their obligations under, this Agreement will neither:


        2.1     result in a breach of any provision of their constitutional
                documents; or


        2.2     result in a breach of, or constitute a default under, any
                instrument to which, prior to Completion, any of the Purchasers
                is a party or by which any of the Purchasers is bound; or


        2.3     require the consent of the shareholders of any of the
                Purchasers; or


        2.4     result in a breach of any order, judgment or decree of any court
                or governmental agency to which any of the Purchasers is a party
                or by which any of the Purchasers is bound.


3       Other than the consents, permissions, approvals and agreements set forth
        in Clause 2.1.1 of this Agreement (the receipt or satisfaction of which,
        in accordance with Clause 2 of this Agreement, is a condition to the
        Completion of the transactions contemplated by this Agreement), all
        consents, permissions, approvals and agreements of third parties that
        are necessary or desirable for the

                                      212
<PAGE>

        Purchasers to obtain in order to enter into and perform this Agreement
        in accordance with its terms have been obtained in writing.

4       No representation or warranty by the Purchasers in this Agreement nor
        any certificate or schedule, furnished or to be furnished to Thales in
        connection with the consummation of the transactions contemplated by
        this Agreement, contains or will contain any untrue statement of a
        material fact.

5       Except for the filings, permits, authorisations, consents and approvals
        as may be required under, and other applicable requirements of, the
        Exchange Act, the HSR Act or any other applicable antitrust laws or
        authorities, the TASE, the Investment Centre of the Israel Ministry of
        Industry and Trade and the Office of the Chief Scientist of the Israel
        Ministry of Industry and Trade, none of the execution, delivery or
        performance of this Agreement by Nice or the Purchasers, the issuance of
        the Ordinary Shares evidenced thereby by Nice, nor the consummation by
        each of Nice and the Purchasers of the transactions contemplated hereby
        or compliance by each of Nice and the Purchasers with any of the
        provisions hereof will (i) conflict with or result in any breach of any
        provisions of the certificate of incorporation, the by-laws or similar
        organisational documents of Nice; (ii) require any filing with, or
        permit, authorisation, consent or approval of any Governmental Authority
        or other person( including without limitation, consents from parties to
        contracts, loans, leases and other agreements to which Nice is a party
        ); (iii) require any consent, approval, or notice under, or result in a
        violation or breach of, or constitute (with or without due notice or the
        passage of time or both) a default (or give rise to any right of
        termination, amendment, cancellation or acceleration) under, any of the
        terms, conditions or provisions of any agreement to which Nice is a
        party; or (iv) violate any order, writ, injunction, decree, statute,
        rule or regulation applicable to Nice or the Purchasers, any of their
        respective properties or assets, excluding from the foregoing clauses
        (ii) and (iii) such violations, breaches or defaults which would not,
        individually or in the aggregate, have a material adverse effect on Nice
        or the ability of Nice to consummate the transactions contemplated
        hereby.

                                      213
<PAGE>

6       There are no actions, suits or proceedings by or, to the knowledge of
        Nice or the Purchasers, investigations by or before any Governmental
        Entity which are pending or, to the knowledge of Nice or the Purchasers,
        threatened in writing against Nice or the Purchasers, which challenge
        the validity of this Agreement or any action taken by Nice or the
        Purchasers pursuant to this When issued, the Shares and the ADSs will be
        duly authorized, validly issued and fully paid and will have the rights
        and privileges set forth in the Nice articles of association or the ADR
        Facility, as applicable, and will be issued free and clear of all Liens,
        voting trusts, proxies, calls or commitments of any kind.

7       When issued, the Shares and the ADSs will be duly authorized, validly
        issued and fully paid and will have the rights and privileges set forth
        in the Nice articles of association or the ADR Facility, as applicable,
        and will be issued free and clear of all Liens, voting trusts, proxies,
        calls or commitments of any kind.

8       Upon effectiveness of the Registration Statement, and upon being
        admitted for trading or authorized for quotation on Nasdaq, the ADRs
        will be freely transferable in the United States, but shall nevertheless
        remain subject to the provisions of Schedule 11 to this Agreement.

                                      214
<PAGE>

                                   SCHEDULE 5

                              CLIFFSTONE WARRANTIES



1       TITLE TO CLIFFSTONE SHARES


1.1     Thales TRC Inc. is the sole legal and beneficial owner of the Cliffstone
        Shares and the sole legal and beneficial owner of the Cliffstone Note.


1.2     All of the Cliffstone Shares and the Cliffstone Note are validly issued
        and fully paid.


1.3     The Cliffstone Shares constitute between 35 and 40% of the fully diluted
        share capital of Cliffstone.


1.4     In respect of the Cliffstone Shares and/or the Cliffstone Note there
        are:

        (a)     no Encumbrances over or affecting them;

        (b)     no agreements, arrangements or obligations to give or create any
                Encumbrances over them; and

        (c)     no claims have been made that any person is entitled to any
                Encumbrances over them.


2       CAPACITY OF THALES TRC, INC.


2.1     Thales TRC, Inc. is duly organised and validly existing under all
        applicable laws.

                                      215
<PAGE>


2.2     Thales TRC, Inc. has the requisite power and authority to enter into and
        perform this Agreement and the other documents which are to be executed
        by it pursuant to this Agreement (the "TRC Completion Documents").


2.3     The TRC Completion Documents will, when executed by Thales TRC, Inc.
        constitute a binding obligation on Thales TRC, Inc. in accordance with
        their respective terms.


2.4     The execution and delivery of, and the performance by Thales TRC, Inc.
        of its respective obligations under the TRC Completion Documents will
        not:


        2.4.1   result in a breach of, or constitute a default under, any
                instrument to which either Thales TRC, Inc. is a party or by
                which Thales TRC, Inc. is bound; or


        2.4.2   result in a breach of any order, judgment or decree of any court
                or governmental agency to which Thales TRC, Inc. is a party or
                by which Thales TRC, Inc. is bound; or


        2.4.3   require the consent of the shareholders of Thales TRC, Inc. or
                of any other person; or


        2.4.4   require Thales TRC, Inc. to obtain any consent or approval of,
                or give any notice to or make any registration with, any
                governmental or other authority which has not been obtained or
                made at the date hereof both on an unconditional basis and on a
                basis which cannot be revoked (save pursuant to any legal or
                regulatory entitlement to revoke the same other than by reason
                of any misrepresentation or misstatement).

                                      216
<PAGE>

3       COMPLIANCE WITH THE CLIFFSTONE DOCUMENTS


        Each of Thales, Thales TRC, Inc. and the Thales Group have at all times
        complied with and are not in breach of the terms of any of the
        Cliffstone Documents and each of Thales, Thales TRC, Inc. and the Thales
        Group are not aware of the counter parties to the Cliffstone Documents
        being in breach of any of their obligations thereunder.


                                      217
<PAGE>

                                   SCHEDULE 6

                                    PENSIONS

                              PART 1 - UK PENSIONS


        Employees of the Business who are members ("Members") of the Racal Group
        Staff Pension and Life Assurance Scheme, the Racal Group Executive
        Manager & Senior Manager Pension Scheme, the Racal Group Executive
        Pension Plan and the Thomson Retirement Benefit Scheme ("Thales'
        Schemes") will be treated as leaving service on the Completion Date for
        pension purposes. Thales will use its reasonable endeavours to procure
        that the Trustees of Thales' Schemes will provide Members with the
        normal leaving service benefits under the provisions of the relevant
        Thales Schemes (which will be advised to the individual Members
        concerned).



                        PART 2 - OVERSEAS PENSION SCHEMES


        US Employees and all other current employees of TCS, Inc., if any, who
        are members (" Members") of the Thales North America Pension Plan, the
        Thales North America 401K Plan and the SIP-II Plan will be treated as
        leaving TCS, Inc.'s service on the Completion Date and will be treated
        in accordance with the terms and conditions contained in each of the
        above described plan dealing with terminate employees. Thales will
        advise individual Members of their rights and benefits under said plans
        on or shortly after the Completion Date.


                                      218
<PAGE>
<TABLE>
<CAPTION>


                                                             SCHEDULE 7


                                                    INTELLECTUAL PROPERTY RIGHTS

                                                            BUSINESS IPR


TRADEMARKS OWNED BY TCSL

<S>                        <C>           <C>               <C>             <C>               <C>           <C>
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

        Trademark              COUNTRY      APPLICATION      APPLICATION       REGISTRATION     RENEWAL             COMMENTS
                                                                DATE
                                              NUMBER                             NUMBER          DATE
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------
A-MUX LOGO                 UK            2059568           5/3/96          2059568           5/3/06
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

BIG PICTURE TECHNOLOGY     CTM           2052991           24/1/01
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           76/288370         20/7/01
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

CALLMASTER                 Norway        912590            23/5/91         155604            11/3/03
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           UK            1452564           9/1/91          1452564           9/1/08
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

GEOSTORE                   UK            1007802           9/3/73          1007802           9/3/08
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

INVESTIGATOR               CTM           1832823           31/8/00         1832823           31/8/10
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           76/149047         18/10/00
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

MIRRA                      CTM           830786            21/5/98         830786            21/5/08
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           75/508202         25/6/98         2476967           14/8/11       Affidavit due 14/8/06
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

RAPIDAX                    USA           113149            7/11/90         1745086           5/1/03
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           UK            1444906           22/10/90        1444906           22/10/07
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

RENAISSANCE                CTM           1307636           14/9/99         1307636           14/9/09
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------
</TABLE>

                                              219
<PAGE>
<TABLE>
<CAPTION>
<S>                        <C>           <C>               <C>             <C>               <C>           <C>
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

        Trademark              COUNTRY      APPLICATION      APPLICATION       REGISTRATION     RENEWAL             COMMENTS
                                                                DATE
                                              NUMBER                             NUMBER          DATE
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           75/837065         1/11/99
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

STOREHOUSE                 UK            1140237           13/9/80         1140237           13/9/11
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

STOREMED                   UK            1176989           18/6/82         1176989           18/6/03
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

STORENET                   UK            1049140           7/7/75          1049140           7/7/06
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

STOREPLEX                  France        92431479          24/8/92         92431479          24/8/02
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           Germany       R52808/9 WZ       21/8/92         2051506           21/8/02
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           75/662730         18/3/99         2378956           22/8/10       Affidavit due 22/8/05
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           UK            1509634           14/8/92         1509634           14/8/09
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

TIENNA                     CTM           1387570           18/11/99        1387570           18/11/09
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           75/924305         22/02/00
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

TRUNKNET                   CTM           1133156           9/4/99          1133156           9/4/09
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           75/698405         5/5/99
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

WORDNET                    France        9556446           24/3/95         9556446           24/3/05
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           Germany       39512614          22/3/95         39512614          22/3/05
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           74/649882         20/3/95         2093445           2/9/07        Affidavit due 2/9/02
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           UK            2013801           10/3/95         2013801           10/3/05
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

WORDSAFE                   Denmark       3542/91           2/10/92         9057/92           2/10/02
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           USA           107236            19/10/90        1745083           5/1/03
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------
</TABLE>

                                                                220
<PAGE>

<TABLE>
<CAPTION>
<S>                        <C>           <C>               <C>             <C>               <C>           <C>
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

        Trademark              COUNTRY      APPLICATION      APPLICATION       REGISTRATION     RENEWAL             COMMENTS
                                                                DATE
                                              NUMBER                             NUMBER          DATE
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------


- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           UK            1439866           7/9/90          1439866           7/9/07
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------

                           Norway        912591            23/5/91         153406            26/11/02
- -------------------------- ------------- ----------------- --------------- ----------------- ------------- ----------------------
</TABLE>


                                                                221
<PAGE>
<TABLE>
<CAPTION>


PATENT OWNED BY TCSL
- --------------------


- ------------------ ------------------ ------------- ------------- ------------- ------------- ------------------- -----------------

     PATENT TITLE   REGISTERED OWNER   APPLICATION   APPLICATION   PUBLICATION   PUBLICATION      INVENTOR(S)        COMMENTS
                                         NUMBER         DATE          NUMBER        DATE
- ------------------ ------------------ ------------- ------------- ------------- ------------- ------------------- -----------------

<S>                <C>                  <C>            <C>           <C>            <C>        <C>                 <c>
VOICE ACTIVITY     Thales Contact       9916430.3      13/7/99       2352948        7/2/01     Neil Martin Crick   Not yet granted
MONITOR            Solutions
- ------------------ ------------------ ------------- ------------- ------------- ------------- ------------------- -----------------
</TABLE>





THIRD PARTY'S RIGHTS
- --------------------



License of this patent has been granted under general Cross Patents License
Agreements signed between Trader and:

        -       Alcatel in the field of Civil Telecommunications

        -       Thomson Multimedia in the field of multimedia or electronics
                consumer products, broadcast and network equipment.


                                      222
<PAGE>


<PAGE>
<TABLE>
<CAPTION>


COPYRIGHT / DESIGN RIGHTS - HARDWARE
- ------------------------------------



The following items are all covered by design documentation. Ownership is with
Thales Contact Solutions Ltd.

<S>                                                                           <C>
- ----------------------------------------------------------------------------- -----------------------------------------------------

                               HARDWARE ITEM                                                          Comments
- ----------------------------------------------------------------------------- -----------------------------------------------------

ICR 64 Recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Rapidax Ranger recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordsafe Maxima recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet series 1 recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet series 2 recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet series 3 recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Tienna recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Mirra recorder
- ----------------------------------------------------------------------------- -----------------------------------------------------

Redac radar recording integration card
- ----------------------------------------------------------------------------- -----------------------------------------------------

PDET (Programmable Digital Extension Extension Tap Card                       Wordnet and Mirrra
- ----------------------------------------------------------------------------- -----------------------------------------------------

PCM32 line card                                                               Tienna
- ----------------------------------------------------------------------------- -----------------------------------------------------

DSP card                                                                      Wordnet
- ----------------------------------------------------------------------------- -----------------------------------------------------

DSP Chip                                                                      Mirra
- ----------------------------------------------------------------------------- -----------------------------------------------------
</TABLE>


                                      223
<PAGE>

<TABLE>
<CAPTION>

COPYRIGHT / DESIGN RIGHTS - SOFTWARE
- ------------------------------------



The following items are all covered by design documentation and source code
listings. Ownership is with Thales Contact Solutions Ltd

<S>                                                                           <C>
- ----------------------------------------------------------------------------- -----------------------------------------------------

                               SOFTWARE ITEM                                                             Comments
- ----------------------------------------------------------------------------- -----------------------------------------------------

Mirra Management software
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet series 1 operating software
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet series 2 operating software                                           Developed by Origin - IPR with TCSL
- ----------------------------------------------------------------------------- -----------------------------------------------------

Tienna operating software                                                     Currently at release 7.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

CMSU software                                                                 Currently at release 7.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

RTT (Replay to Turret) software                                               Currently at release 7.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

Replay server software                                                        Currently at release 7.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

SARA (Search and Replay application)
- ----------------------------------------------------------------------------- -----------------------------------------------------

SARA NG (Search and Replay application)
- ----------------------------------------------------------------------------- -----------------------------------------------------

RECO (Radar and voice scenario reconstruction replay application)
- ----------------------------------------------------------------------------- -----------------------------------------------------

Investigator search and replay application                                    Currently at release 7.0 (4.1 in general release)
- ----------------------------------------------------------------------------- -----------------------------------------------------

Investigator RX Scenario reconstruction replay application (was Radio Currently
at release 2.0 Replay)
- ----------------------------------------------------------------------------- -----------------------------------------------------

AQM (Agent Quality Management) application                                    Currently at release 3.0 (2.2 in general release)
- ----------------------------------------------------------------------------- -----------------------------------------------------

Call confirm and last message replay applications                             Currently both at release 1.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

MCC (Media Control Centre) application                                        Currently at release 1.0
- ----------------------------------------------------------------------------- -----------------------------------------------------

Wordnet vendor object recorder control software for Prism application         Developed by Cliffstone - IPR with TCSL
- ----------------------------------------------------------------------------- -----------------------------------------------------

Renaissance dashboard system management application
- ----------------------------------------------------------------------------- -----------------------------------------------------
</TABLE>


                                      224
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                           <C>
- ----------------------------------------------------------------------------- -----------------------------------------------------
QA recorder screen and voice recording application                            Developed by Cliffstone - IPR with TCSL
- ----------------------------------------------------------------------------- -----------------------------------------------------

Smart logger application                                                      Development by Cliffstone incomplete - IPR with TCSL
- ----------------------------------------------------------------------------- -----------------------------------------------------

RecorderLink recorder integration software                                    Currently at release 3.5
- ----------------------------------------------------------------------------- -----------------------------------------------------

Web replay application                                                        Not released
- ----------------------------------------------------------------------------- -----------------------------------------------------

Switch decoder signal processing software                                     Various decoders for a range of telephone switches
- ----------------------------------------------------------------------------- -----------------------------------------------------
</TABLE>


                                      225
<PAGE>

DESIGN RIGHTS - DATABASE
- ------------------------



The following items are all covered by design documentation. Ownership is with
Thales Contact Solutions Ltd

<TABLE>
<CAPTION>
<S>                                                    <C>
- ------------------------------------------------------ ---------------------------------------------------------------

                    DATABASE ITEM                                                 Comments
- ------------------------------------------------------ ---------------------------------------------------------------

Tracker database                                       Uses Microsoft JET technology
- ------------------------------------------------------ ---------------------------------------------------------------

Tienna database                                        Uses Microsoft SQL server technology
- ------------------------------------------------------ ---------------------------------------------------------------

CMSU database                                          Uses Microsoft SQL server technology
- ------------------------------------------------------ ---------------------------------------------------------------



DESIGN RIGHTS - ARCHITECTURE
- ----------------------------



The following items are all covered by design documentation. Ownership is with
Thales Contact Solutions


- ------------------------------------------------------ ---------------------------------------------------------------

                  ARCHITECTURE ITEM                                               Comments
- ------------------------------------------------------ ---------------------------------------------------------------

Renaissance Architecture                               Currently at release 7.0
- ------------------------------------------------------ ---------------------------------------------------------------
</TABLE>



DOMAIN NAMES
- ------------



The following domain names have been registered by Thales Contact Solutions.


                                      226
<PAGE>
<TABLE>
<CAPTION>
<S>                                                    <C>
- ------------------------------------------------------ ---------------------------------------------------------------

                     DOMAIN NAME                                                  COMMENTS
- ------------------------------------------------------ ---------------------------------------------------------------

Bigpictech.com
- ------------------------------------------------------ ---------------------------------------------------------------
</TABLE>



                                      227
<PAGE>


SOFTWARE OWNED BY TCS GMBH
- --------------------------


DATAX CONVERTOR SOFTWARE


SOFTWARE OWNED BY TCS SA
- ------------------------

<TABLE>
<CAPTION>
<S>                                                                             <C>
- -----------------------------------------------------------------------------------------------------------------------------------

              NOM                 VERSION   LICENCE     SYSTEME D'EXPLOITATION   TYPE D'ENREGISTREUR          DATE DE SORTIE
- -----------------------------------------------------------------------------------------------------------------------------------

       REECOUTE IMMEDIATE           1,9      Poste    Windows 9x/NT/2000               WORDNET                      //
- -----------------------------------------------------------------------------------------------------------------------------------

     INTERFACE SERVEUR TCS           1       Site     SERVEUR :Windows NT/2000      WORDNET/MIRRA      Diponible Fin Aout avec une
                                                      CLIENT: Tous systemes                            version beta Fin juillet
                                                      d'exploitations
- -----------------------------------------------------------------------------------------------------------------------------------

     CONVERTISSEUR WAVE TCS          1       Poste    Windows 9x/NT/2000            WORDNET/MIRRA                   //
- -----------------------------------------------------------------------------------------------------------------------------------

REECOUTE IMMEDIATE TCS Pocket PC     1       Poste    Windows CE (Pocket PC)        WORDNET/MIRRA                Fin Aout
- -----------------------------------------------------------------------------------------------------------------------------------

   REECOUTE IMMEDIATE TCS PC         1       Poste    Unix,  Linux,  Mac OS         WORDNET/MIRRA             Fin Septembre
                                                      version beta Fin juillet
                                                      tous les systemes
                                                      suportant le JAVA)
- -----------------------------------------------------------------------------------------------------------------------------------

        LIEN CENTORE 15              1                Windows 9x/NT/2000               WORDNET                      //
- -----------------------------------------------------------------------------------------------------------------------------------

        LIEN CENTORE 15              2                Windows 9x/NT/2000               WORDNET                  Fin Avril
- -----------------------------------------------------------------------------------------------------------------------------------

          SUPERVISEUR                        Poste    Windows 9x/NT/2000               WORDNET
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      228
<PAGE>


                                   SCHEDULE 8

                                   GUARANTEES





1       Those bonds and guarantees listed at Disclosure Document UK.A.4
        excluding those bonds and guarantees relating to Iran including (but not
        limited to) those in relation to the Civil Aviation Organisation (issued
        on 29 March 1995 and 20 February 1998) and the State Purchasing
        Organisation (performance bonds issued on 28 September 1994 and 9
        January 1998) ("the Iran Guarantees")


2       A guarantee given by Thales to Barclays Bank Plc in respect of any
        liability of TCSL arising from those bonds and guarantees given by
        Barclays Bank plc to support obligations of the Companies with respect
        to the Business as listed at Disclosure Document UK.A.4 but excluding
        the Iran Guarantees


3       A guarantee proposed to be given by TCSL in respect of obligations of
        TCS GmbH under an agreement for the sale of certain assets and the
        novation of certain contracts to Origin Data Realisation GmbH disclosed
        at Disclosure Document UK.A.42


                                      229
<PAGE>

                                   SCHEDULE 9

                              ACCOUNTING PRINCIPLES

The Completion Balance Sheet shall be prepared in the form set out in part D of
this Schedule. The Completion Balance Sheet shall be drawn up in accordance
with:


A       GENERAL ACCOUNTING PROCEDURES


        (i)     the specific accounting policies, procedures and practices set
                out in paragraph C below;


        (ii)    to the extent not inconsistent with paragraph A(i) above, then:


                (a)     Assets and Assumed Liabilities of the Business of the US
                        Company shall be accounted for in accordance with US
                        GAAP;


                (b)     Assets and Assumed Liabilities of the Business of the UK
                        Company shall be accounted for in accordance with UK
                        GAAP;


                (c)     Assets and Assumed Liabilities of the Business of the
                        German Company shall be accounted for in accordance with
                        German GAAP;


                (d)     Assets and Assumed Liabilities of the Business of the
                        French Company shall be accounted for in accordance with
                        French GAAP; and


                the GAAP of the relevant country shall in each case be applied
                in accordance with the same accounting policies, procedures and
                practices adopted in the preparation of the Accounts and in
                particular the provisions against the realisable value of assets
                and liabilities shall be prepared on a basis consistent with
                that applied in the Accounts.


                                      230
<PAGE>

B       GENERAL


1       The Completion Balance Sheet shall be expressed in Dollars and amounts
        in other currencies shall be translated into Dollars at the Conversion
        Rate prevailing on the Completion Date.


2       All records and work papers related to the preparation and audit of the
        Accounts shall be made available to the Auditors.


3       Inventory wherever situated shall be included in the Completion Balance
        Sheet and valued in accordance with the Accounting Principles.


4       Excluded Assets and Excluded Liabilities shall not be included in the
        Completion Balance Sheet.


C       SPECIFIC ACCOUNTING PROCEDURES


1       The Completion Net Asset Value will be determined from the combination
        of the Assets and Assumed Liabilities (which shall be deducted from the
        Assets) of the Companies, which will have been prepared in accordance
        with the accounting rules described above, subject to:


o   Elimination of all intra TCS Group receivables and payables whether trade or
    financial and intra Thales Group receivables and payables whether trade or
    financial

o   Elimination of investments in combined Companies (eg TCSL investment in TCS
    GmbH)

o   Elimination of unrealised profit included in inventory

o   Elimination of pension related assets or liabilities, deferred taxes and any
    accrued expenses related to Thales Group debts

o   Any other steps required solely for combination purposes to equitably arrive
    at the Completion Net Asset Value as mutually agreed by the parties or
    failing agreement as finally determined by Independent Accountants.


2       Inventory in excess of Euro 13,325,000 (being 105% of the amount of
        Inventory shown in the Combination Accounts) shall be disregarded and
        shall be valued as nil for the purposes of the Completion Balance Sheet.


3       A provision shall be made in respect of accrued not taken holiday pay.

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<PAGE>


4       A provision shall be made for bonuses and commissions to be paid after
        Completion which relate to a period of performance prior to Competition.


D       FORM OF COMPLETION BALANCE SHEET


        (See following page)


E       FORM OF AUDITORS' CERTIFICATE


        (to be prepared on the notepaper of the Auditors)

        To:       Thales

                  Nice

        date

        reference

        Gentlemen

        The Company

        We refer to the Sale and Purchase Agreement ("the Agreement") made
        between Thales and Nice on 2002 for the sale of the Business and the
        Assets as therein defined. Words and expressions defined for the purpose
        of the Agreement are to have the same meanings in this letter.

        In accordance with clause [13] of the Agreement we attach, initialled
        for identification, draft Completion Balance Sheet and a statement of
        the Net Asset Value as at the Completion Date. The statement shows a Net
        Asset Value of Euro [ ] and therefore in accordance with the Agreement
        and by reference to the Target Net Asset Value the amount payable by [ ]
        to [ ] is Euro[ ].

        In our opinion the draft Completion Balance Sheet have been prepared in
        all material respects in accordance with Clauses [13] of the Agreement
        and the Accounting Instructions.

        Yours faithfully

        Auditors


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                                   SCHEDULE 10

                        OVERSEAS COMPLETION REQUIREMENTS





                            PART 1 - THE US BUSINESS



        OBLIGATIONS OF THALES, THE THALES GROUP, NICE AND THE PURCHASERS


1.1     To enter into an assignment and assumption agreement in the agreed
        terms.


1.2     To enter into a bill of sale in the agreed terms.


1.3     To enter into a stock and promissory note purchase agreement in the
        agreed terms in relation to the Cliffstone Shares and the Cliffstone
        Note.


1.4     To enter into a trademark assignment agreement in the agreed terms.


1.5     To enter into a patent assignment agreement in the agreed terms.


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<PAGE>


                          PART 2 - THE FRENCH BUSINESS



1       OBLIGATIONS OF THALES, TCSA, NICE AND THE FRENCH PURCHASER


        To enter into a French Business Transfer agreement in the agreed terms.


2       OBLIGATIONS OF THALES AND/OR TCSA


        To deliver to Nice a certified copy of the shareholders resolution of
        TCSA:


        (a)     authorising the transfer of the French Business; and


        (b)     approving the transfer of the registered office of TCSA to a new
                location.


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                          PART 3 - THE GERMAN BUSINESS



1       OBLIGATIONS OF THALES, TCS GMBH AND GERMAN ACQUISITION CO


1.1     To enter into a German Business Transfer Agreement in the agreed terms.


1.2     To initial a complete list of assets at Completion.



2       OBLIGATIONS OF THALES AND/OR TCS GMBH


2.1     To deliver to Nice a certified copy extract from the current commercial
        register of TCS GmbH. shareholders of TCS GmbH authorising the managing
        director of TCS GmbH to sell the German Business.


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                                   SCHEDULE 11

  CORPORATE GOVERNANCE, REGISTRATION RIGHTS AGREEMENT AND STANDSTILL AGREEMENT

          Corporate Governance; Lock Up; Orderly Marketing Arrangements



1       The parties recognise that the Share Consideration will result in the
        Thales Group holding 2,187,500 Nice Shares. Nice hereby represents and
        warrants that no Ordinary Shares of Nice have been issued since December
        31, 2001 or will be issued prior to the Completion Date other than (i)
        upon exercise of options or purchases of Nice Shares by employees,
        officers or directors of, or consultants to, Nice, whether pursuant to
        Nice's current or any future written compensatory plans or agreements or
        otherwise in the ordinary course of business or (ii) as otherwise
        permitted by the terms and conditions of the Sale and Purchase
        Agreement. Thales hereby confirms its understanding of the current
        company business strategy of Nice as previously presented to Thales.
        Thales hereby acknowledges and agrees that Nice may, from time to time,
        issue additional Nice Shares, resulting in dilution of Thales'
        percentage interest in Nice. Thales will have no special right of first
        refusal or other pre-emptive rights in respect of any further issue of
        Nice Shares save for any rights it might hold together with the other
        Shareholders in Nice, under Israeli law or the rules of NASDAQ or the
        ISA.

2       Thales has also agreed to be bound by the terms and conditions of a
        standstill agreement substantially in the form of Schedule 11.1 hereto.

3       On Completion, the board of directors of Nice (the "Board") shall
        appoint two persons nominated by Thales to the Board one of whom may at
        Thales' election serve on the audit committee of the Board. If Thales
        sells or otherwise disposes of more than 50% of the Nice Shares
        constituting the Share Consideration, then one of Thales' appointees to
        the Board shall immediately resign and the remaining director nominated
        by Thales (if applicable) may at Thales' election serve on the audit
        committee of the Board. If Thales sells or otherwise disposes of more
        than seventy-five percent (75%) of the Nice Shares constituting the
        Share Consideration, or if

                                      236
<PAGE>

        the Thales Group holds less than 2% of all issued and outstanding
        Ordinary Shares of Nice, then Thales' remaining appointee to the Board
        (if applicable) shall, if requested by Nice or the Board, immediately
        resign from the Board (and the audit committee, if applicable). The
        appointment and maintenance in office of such director(s) shall be
        subject to the corporate laws of Israel, the articles of association of
        Nice, Israel securities laws, and the rules and regulations of the
        Israel Securities Authority ("ISA"), the Tel Aviv Stock Exchange
        ("TASE") and the Nasdaq National Market ("Nasdaq"). Without derogating
        from the generality of the foregoing, Thales acknowledges that the
        shareholders of Nice have the right to appoint the members of the Board,
        and accordingly, the appointment of Thales' nominees as aforesaid is
        subject to the confirmation of such appointments, or re-appointment, by
        the shareholders of Nice at the next annual meeting of shareholders. It
        is anticipated that the Board will hold at least four meetings annually
        (one in Europe and three in Israel on an annual basis) with all meetings
        held in English.

        Nice shall provide to the members of the Board of Nice designated by
        Thales indemnification rights and insurance coverage in each case on
        terms no less favourable than those available to other members of the
        Board of Nice from time to time.

4.      (a)     Except as provided in paragraph 6 below, Thales hereby agrees
                that Thales will not sell, assign, transfer, pledge, encumber or
                otherwise dispose of :

                (i)     any of the Nice Shares comprising the Share
                        Consideration prior to the first anniversary of
                        Completion;

                (ii)    more than twenty--five percent (25%) of the Nice Shares
                        comprising the Share Consideration prior to the second
                        anniversary of Completion; and

                (iii)   more than fifty percent (50%) of the Nice Shares
                        comprising the Share Consideration prior to the end of
                        thirty (30) months after Completion.

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<PAGE>

        (b)     In addition, Thales hereby further agrees that (i) neither
                Thales nor any of its affiliates will engage in any hedging or
                monetization strategies with respect to the Nice Shares
                (including, without limitation, short sales, purchasing
                cash-settled put options, writing covered call options, or
                cashless collar options) at any time prior to the first
                anniversary of Completion; and (ii) neither Thales nor any of
                its affiliates will engage in any short sales at any time during
                which Thales has a nominee on the Board of Directors of Nice.

5.      The following principles shall apply to the manner and timing of sale of
        the Nice Shares comprising the Share Consideration:

        (a)     At any time during which one or more nominees of Thales serve on
                the Board or during which no nominee of Thales serves on the
                Board solely due to one or more of the following (hereinafter,
                an "Acceptable Reason"): (i) Thales has failed to nominate an
                individual to the Board; (ii) Thales' nominees, if nominated or
                elected to serve as directors of a public company, would deprive
                the company of any rights, priviledges, exemptions or other
                benefits that would otherwise be available to the company under
                Israeli law or the rules or regulations of Nasdaq, the SEC or
                the ISA, and Thales has failed to nominate a replacement nominee
                whose service would not have a similar effect on the company; or
                (iii) all of Thales' nominees have resigned pursuant to
                paragraph 8 below :

                (i)     all sales of Nice Shares comprising the Share
                        Consideration shall be effected through Nasdaq;

                (ii)    no sales of Nice Shares comprising the Share
                        Consideration shall take place at a discount of more
                        than ten percent (10%) to the last reported sale price
                        immediately prior to the trade or the previous day's
                        closing sale price on Nasdaq as applicable; and

                (iii)   Thales must give Nice two Nasdaq trading days notice
                        prior to a sale comprising one percent (1%) or more of
                        the issued and outstanding shares of Nice. Following
                        such notification

                                      238
<PAGE>

                        by Thales, Nice shall keep confidential the subject
                        matter of such notification and shall not engage in any
                        activities with respect to the subject matter of such
                        notification that would violate the rules and
                        regulations of Nasdaq, TASE or the ISA.

                (iv)    All sales of Nice Shares comprising the Share
                        Consideration (whether or not made under a registration
                        statement, under SEC Rule 144, or otherwise), shall be
                        subject to the provisions of the Registration Rights
                        Agreement, and to any restrictions imposed by Nice's
                        internal policies regarding sales by officers, directors
                        and "affiliates" of Nice (Thales acknowledging that it,
                        for so long as it has a designee on the board or
                        beneficially owns 5% or more of the outstanding shares,
                        will be an "affiliate" of Nice for purposes of such
                        policies).

        (b)     At any time during which Thales does not have one or more
                nominees on the Board for any reason other than an Acceptable
                Reason:

                (i)     no sales of Nice Shares shall take place at a discount
                        of more than ten percent (10%) to the lower of (i) the
                        last reported sale price immediately prior to the trade
                        or (ii) the previous day's closing sale on Nasdaq, as
                        applicable; and

                (ii)    no transaction not effected through the Nasdaq shall
                        take place unless Nice is given not less than five
                        business days' notice of such transaction and a right of
                        first refusal to acquire, or cause its designee to
                        acquire, the relevant securities on the same terms as
                        offered in such off-market transaction, provided that
                        Nice's right of first refusal will expire if Nice or its
                        designee fails to purchase the shares within the five
                        business day period, and provided, further that Nice
                        shall not have a right of first refusal:

                                      239
<PAGE>

                        (A)     when such off-market transaction is to a
                                Financial Institution (as defined below) acting
                                as intermediary who no later than the date of
                                its purchase of the Nice Shares has committed to
                                dispose of the Nice Shares in transactions
                                effected on Nasdaq to multiple financial
                                institutions; or

                        (B)     the transaction involves a sale to a single
                                Financial Institution purchasing Nice Shares for
                                its own account;

                        but where either (A) or (B) above shall be applicable,
                        two business days' prior notice must be given to Nice
                        before the relevant transaction is effected. Following
                        such notification by Thales, Nice shall keep
                        confidential the subject matter of such notification and
                        shall not engage in any activities with respect to the
                        subject matter of such notification that would violate
                        federal or state securities laws or the rules or
                        regulations of Nasdaq, TASE or the ISA.

                        For purposes of the foregoing, "Financial Institution"
                        shall mean any registered securities broker, dealer,
                        market maker, or regulated bank that does not control,
                        is not under common control with, and is not controlled
                        by any individual, partnership, corporation (including a
                        business trust), limited liability company, joint stock
                        company, trust, unincorporated association, joint
                        venture or other entity (each a "Person") that is
                        engaged in a business competitive with the Business or
                        the business of Nice. For purposes of the foregoing, the
                        term "control" (including the terms "controlled by" and
                        "under common control with"), when used with respect to
                        a specified Person, means the possession, directly or
                        indirectly, of the power to direct or cause the
                        direction of the management or policies of such Person,
                        whether through ownership of voting securities or
                        partnership or other

                                      240
<PAGE>

                        ownership interests, by contract or otherwise; PROVIDED
                        that, without limiting the generality of the foregoing,
                        (a) any Person (including family members of such Person)
                        which owns, directly or indirectly, securities
                        representing 20% or more of the value or ordinary voting
                        power of a corporation or 20% or more of the partnership
                        or other ownership interests (based upon value or vote)
                        of any other Person is deemed to control such
                        corporation or other Person, (b) a general partner shall
                        always be deemed to control any partnership of which it
                        is a general partner, and (c) a member-manager of a
                        limited liability company shall always be deemed to
                        control any limited liability company of which it is a
                        manager.

        (iii)   All sales of Nice Shares comprising the Share Consideration
                (whether or not made under a registration statement, under SEC
                Rule 144, or otherwise), shall be subject to the provisions of
                the Registration Rights Agreement.

6.      Upon expiration of the lock up periods described in paragraph 4 above,
        Thales may sell, assign, transfer or otherwise dispose of Nice Shares
        subject to the orderly marketing arrangements described in paragraph 5
        above and in accordance with applicable law.

7.      Notwithstanding the provisions of paragraphs 4 and 5, Thales shall be
        permitted to effect the following transfers of Nice Shares:

        (a)     Any transfer of Nice Shares to any Affiliate of Thales; provided
                that the transferee is, and acknowledges in writing that it is,
                with respect to the transferred Nice Shares, subject to all of
                the restrictions set forth in this Schedule and in the
                Standstill Agreement;

        (b)     Any bona fide pledge of Nice shares to a financial institution
                as security for any indebtedness of Thales; provided that the
                pledgee is, and acknowledges in writing that it is, with respect
                to the pledged Nice Shares, subject to all of the restrictions
                set forth in this Schedule and in the Standstill Agreement;

                                      241
<PAGE>

        (c)     Any transfer of Nice Shares in connection with the sale of all
                or substantially all the assets of Thales; provided that the
                transferee is, and acknowledges in writing that it is, with
                respect to the transferred Nice Shares, subject to all of the
                restrictions set forth in this Schedule and in the Standstill
                Agreement and provided further that the provisions of paragraph
                3 of this Schedule shall apply only to Thales and shall not
                apply to any such transferee;

        (d)     Any deposit of Nice Shares with the Depositary in exchange for
                ADRs, or any withdrawal of Nice Shares from the Depositary upon
                surrender of ADRs under the Deposit Agreement, dated as of
                January 24, 1996, by and among the Bank of New York, as
                depositary, Nice and holders of ADRs.

8.      In the event of a significant bona fide disagreement with Nice's company
        strategy (a "Bona Fide Dispute") at any time after the first anniversary
        of Completion that results in the resignation of all of Thales' nominees
        to the Board (but excluding a resignation of said board members for any
        other reason), the lock up periods described in paragraph 4 above shall
        be reduced to the lesser of 6 months or the remaining lock up period for
        the Nice Shares still subject to such restrictions as of the date of
        resignation of Thales' appointed nominees to the Board. Notwithstanding
        the foregoing, the Nice Shares shall remain subject to the orderly
        marketing arrangements described in paragraph 5(b) above. In the event
        that, for any reason other than a Bona Fide Dispute or an Acceptable
        Reason (as defined above), Thales' nominees to the Board are not
        appointed or re-appointed by Nice, or are removed or replaced by Nice,
        the restrictions contained in paragraph 1, 2, 4 and 5(a) (but not 5(b))
        shall terminate forthwith. Such restrictions shall not terminate upon
        the voluntary resignation of Thales' nominees to the Board.

9.      During any period of time in which: (i) Thales has the right to
        designate, or in which (ii) Thales has serving on Nice's Board, one or
        more nominee directors, Thales agrees to vote its Nice Shares in favour
        of Nice's Board's recommendation as to additions, removals or
        substitutions to the Board and

                                      242
<PAGE>

        Thales further agrees not, individually or jointly with any others, to
        initiate, propose, encourage, support or vote for the appointment or
        removal of any other person to the Board or any shareholder proposal
        relating to the appointment or removal of any nominee to the Board,
        which is not supported by Nice's Board.


                                      243
<PAGE>

================================================================================





                          REGISTRATION RIGHTS AGREEMENT



                                 BY AND BETWEEN







                                     [NICE]



                                       AND



                                    [THALES]





                      DATED AS OF [________________], 2002







                                      244
<PAGE>

                          REGISTRATION RIGHTS AGREEMENT



This Registration Rights Agreement (this "Agreement"), dated as of
______________, 2002, is entered into by and between [Nice], a corporation
organized under the laws of Israel (the "Company") and [Thales], a company
organized under the laws of France (the "Initial Holder").



                                    RECITALS


WHEREAS, the Initial Holder and the Company have entered into a Sale and
Purchase Agreement, dated [________________], 2002 (the "Sale and Purchase
Agreement") pursuant to which the Company has agreed to purchase from the
Initial Holder certain securities and other assets of the Initial Holder
described therein for the consideration described therein;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the Company
will issue or cause to be issued [2,187,500] American Depository Shares of the
Company ("ADSs"), each representing one Ordinary Share, par value 1.00 New
Israeli Shekel per share, of the Company (each, an "Ordinary Share") to the
Initial Holder;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the ADSs and
Ordinary Shares issued to the Initial Holder are subject to certain restrictions
on transfer pursuant to (A) Schedule 11 to the Sale and Purchase Agreement,
including prohibitions on any transfers within the first year following their
issuance, limitations on transfers in subsequent periods, and limitations on the
manner of sale (including pricing) of ADSs and any American Depositary Receipts
representing ADSs ("ADRs), and (B) US and Israeli securities laws;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the Company
has agreed to eliminate certain of the restrictions under US and Israeli
securities laws by entering into this Agreement to provide the Initial Holder
with registration rights with respect to the ADSs and Ordinary Shares issued to
the Initial Holder pursuant to the terms of the Sale and Purchase Agreement; and

WHEREAS, the Company and the Initial Holder desire to enter into this
Registration Rights Agreement to provide for such registration rights on the
terms set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:

1.      Certain Definitions.

        As used in this Agreement, the following terms shall have the meanings
        ascribed to them below:

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<PAGE>

1.1.    "AFFILIATE" shall have the meaning given to it in Rule 12b-2 of the
        General Rules and Regulations under the Exchange Act.

1.2.    "COMMISSION": the Securities and Exchange Commission.

1.3.    "EXCHANGE ACT": the Securities Exchange Act of 1934, as amended.

1.4.    "HOLDER" or "HOLDERS": the Initial Holder for so long as it shall hold
        Registrable Securities and any transferee of Registrable Securities to
        whom the Initial Holder shall assign or transfer any rights hereunder,
        PROVIDED that such transferee has agreed in writing to be bound by this
        Agreement and the transfer restrictions set forth in Schedule 11 to the
        Sale and Purchase Agreement in respect of such Registrable Securities.

1.5.    "PERSON": any natural person, corporation, partnership, firm,
        association, trust, government, governmental agency or other entity,
        whether acting in an individual, fiduciary or other capacity.

1.6.    "REGISTRABLE SECURITIES": the ADSs issued to the Holder pursuant to the
        terms of the Sale and Purchase Agreement and the Ordinary Shares
        underlying such ADSs. As to any particular Registrable Securities, such
        securities shall cease to be Registrable Securities when (I) a
        registration statement with respect to the sale of such securities shall
        have been declared effective under the Securities Act and such
        securities shall have been disposed of in accordance with such
        registration statement, or (ii) such securities are eligible to be sold
        or distributed pursuant to Rule 144 (or any successor provision) under
        the Securities Act within any consecutive three month period (including,
        without limitation, pursuant to Rule 144(k)) without volume limitations.

1.7.    "SECURITIES ACT": the Securities Act of 1933, as amended.

2.      Registration Rights.

2.1     SHELF REGISTRATION STATEMENT

        (a)     Obligation to File and Maintain. Subject to the prior receipt by
                the Company of the audited financial statements, auditors'
                report and current accountants' consent required by Section 10.6
                of the Sale and Purchase Agreement, the Company agrees to
                prepare and, within two hundred seventy (270) days following the
                Completion Date (as defined in the Sale and Purchase Agreement)
                and in any event not later than June 30, 2003 (or, if later, the
                date that the Company's report on Form 20-F is required to be
                filed with the Commission), to file with the Commission, one (1)
                registration statement for an offering to be made on a
                continuous basis pursuant to Rule 415 under the Securities Act,
                as such Rule may be amended from time to time, or any similar
                rule or regulation hereafter adopted by the Commission, covering
                all of the Registrable Securities held by the Holders (such
                registration, the "Shelf Registration Statement"). The Shelf
                Registration Statement shall be on Form F-3 under the

                                      246
<PAGE>

                Securities Act or another appropriate form selected by the
                Company (and reasonably acceptable to the participating Holders)
                permitting registration of such Registrable Securities for
                resale by the participating Holders in the manner or manners
                reasonably designated by them (not including underwritten
                offerings). The Company shall use its reasonable commercial best
                efforts to cause the Shelf Registration Statement to be declared
                effective by the Commission pursuant to the Securities Act no
                later than the one year anniversary of the Completion Date, and
                to keep the Shelf Registration Statement continuously effective
                under the Securities Act until the later of (i) the third
                anniversary of the Completion Date or (ii) the date on which all
                of such securities are eligible to be sold or distributed
                pursuant to Rule 144 (or any successor provision) under the
                Securities Act within any consecutive three month period
                (including, without limitation, pursuant to Rule 144(k)) without
                volume limitations (such period, the "Effectiveness Period");
                provided, that the Effectiveness Period shall be extended by
                that number of days which is equal to the aggregate number of
                days that the selling Holders are required to suspend use of the
                Shelf Registration Statement pursuant to actions or events
                described in Section 3 of this Agreement.

        (b)     Selling Securityholder Information. The Company may require each
                participating Holder to furnish to the Company such information
                regarding the Holder and the distribution of the Registrable
                Securities as the Company may from time to time reasonably
                require for inclusion in the Shelf Registration Statement, and
                the Company may exclude from such registration the Registrable
                Securities of any Holder that fails to furnish such information
                within twenty (20) business days after delivery of such request
                by the Company. Each Holder agrees to furnish to the Company all
                information required to be disclosed in order to make the
                information previously furnished to the Company by such Holder
                not misleading.

        (c)     The Company represents and warrants that it currently meets the
                requirements for use of Form F-3 for registration of the public
                resale of the Registrable Securities and has no knowledge of any
                facts which would cause the Company to fail to meet such
                requirements. In the event that after the Completion Date Form
                F-3 is not available for the registration of the public resale
                of Registrable Securities pursuant to the terms herein, the
                Company shall use reasonable efforts to (i) register the public
                resale of the Registrable Securities on another appropriate
                short form, reasonably acceptable to the Holders, and (ii)
                undertake to register the Registrable Securities on Form F-3 as
                soon as such form is available; PROVIDED, that the Company shall
                maintain the effectiveness of the Shelf Registration Statement
                then in effect until such time as a Shelf Registration Statement
                on Form F-3 covering the Registrable Securities has been
                declared effective; PROVIDED, further that the combined
                effectiveness period of all Shelf Registration Statements
                covering the Registrable Securities shall not be longer than the
                Effectiveness Period.

                                      247
<PAGE>

2.2     REGISTRATION PROCEDURES.
        In connection with the preparation and filing of the Shelf Registration
        Statement, the Company shall, as expeditiously as practicable:

        (a)     prepare and file with the Commission a registration statement on
                Form F-3 under the Securities Act or another appropriate form
                selected by the Company (and reasonably acceptable to the
                participating Holders) for the disposition of the Registrable
                Securities of the Holders, which shall comply as to form in all
                material respects with the requirements of the applicable form
                and include all financial statements required by the Commission
                to be filed therewith, and the Company shall use its best
                efforts to cause such registration statement to become and
                remain effective (PROVIDED, HOWEVER, that before filing a
                registration statement or prospectus or any amendments or
                supplements thereto, or comparable statements under securities
                or blue sky laws of any jurisdiction, the Company will furnish
                to one counsel for the Holders participating in the planned
                offering (selected by the Holders of a majority of the
                Registrable Securities included in such registration) copies of
                all such documents proposed to be filed (including all exhibits
                thereto), which documents will be subject to the reasonable
                review and reasonable comment of such counsel;

        (b)     prepare and file with the Commission such pre- and
                post-effective amendments and supplements to such registration
                statement and the prospectus used in connection therewith as may
                be necessary to keep such registration statement effective until
                the expiration of the Effectiveness Period and to comply with
                the provisions of the Securities Act with respect to the sale or
                other disposition of all Registrable Securities covered by such
                registration statement in accordance with the intended methods
                of disposition by the seller or sellers thereof set forth in
                such registration statement;

        (c)     furnish, without charge, to each seller of such Registrable
                Securities such number of copies of such registration statement,
                each pre- and post-effective amendment and supplement thereto
                (in each case including all exhibits), and the prospectus
                included in such registration statement (including each
                preliminary prospectus) in conformity with the requirements of
                the Securities Act, and other documents, as such seller may
                reasonably request in order to facilitate the public sale or
                other disposition of the Registrable Securities owned by such
                seller (the Company hereby consenting to the use in accordance
                with all applicable laws and the provisions of this Agreement of
                each such registration statement (or amendment or post-effective
                amendment thereto) and each such prospectus (or preliminary
                prospectus or supplement thereto) by each such seller of
                Registrable Securities in

                                      248
<PAGE>

                connection with the offering and sale of the Registrable
                Securities covered by such registration statement or
                prospectus);

        (d)     use its reasonable commercial best efforts to register or
                qualify the Registrable Securities covered by such registration
                statement under such other securities or "blue sky" laws of such
                jurisdictions as any sellers of Registrable Securities shall
                reasonably request, and do any and all other acts and things
                which may be reasonably necessary or advisable to enable such
                sellers to consummate the disposition of the Registrable
                Securities in such jurisdictions, except that in no event shall
                the Company be required to qualify to do business as a foreign
                corporation in any jurisdiction where it would not, but for the
                requirements of this paragraph (e), be required to be so
                qualified, to subject itself to taxation in any such
                jurisdiction or to consent to general service of process in any
                such jurisdiction;

        (e)     promptly notify each Holder selling Registrable Securities
                covered by such registration statement: (i) when the
                registration statement, any pre-effective amendment, the
                prospectus or any prospectus supplement related thereto or
                post-effective amendment to the registration statement has been
                filed and, with respect to the registration statement or any
                post-effective amendment, when the same has become effective
                (with such notification by fax or email on the same day as such
                filing or effectiveness); (ii) of any request by the Commission
                or state securities authority for amendments or supplements to
                the registration statement or the prospectus related thereto or
                for additional information; (iii) of the issuance by the
                Commission of any stop order suspending the effectiveness of the
                registration statement or the initiation of any proceedings for
                that purpose; (iv) of the receipt by the Company of any
                notification with respect to the suspension of the registration
                or qualification of any Registrable Securities for sale under
                the securities or blue sky laws of any jurisdiction or the
                initiation of any proceeding for such purpose; and (v) of the
                existence of any fact of which the Company becomes aware which
                results in the registration statement, the prospectus related
                thereto or any document incorporated therein by reference
                containing an untrue statement of a material fact or omitting to
                state a material fact required to be stated therein or necessary
                to make any statement therein not misleading; and, if the
                notification relates to an event described in clause (v), the
                Company shall (A) promptly, and in any event within ten (10)
                business days, prepare and file with the Commission a prospectus
                supplemented or amended so that, as thereafter delivered to the
                purchasers of such Registrable Securities, such prospectus shall
                not include an untrue statement of a material fact or omit to
                state a material fact required to be stated therein or necessary
                to make the statements therein in the light of the circumstances
                under which they were made not misleading and (B) promptly
                furnish to each such seller a reasonable number of copies of
                such supplemented or amended prospectus. In the event the
                Company shall give any such notice, the Effectiveness Period
                shall be

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                extended by the number of days during such period from and
                including the date of the giving of such notice to and including
                the date when each seller of any Registrable Securities covered
                by such registration statement shall have received the copies of
                the supplemented or amended prospectus;

        (f)     comply with all applicable rules and regulations of the
                Commission;

        (g)     (i) cause all such Registrable Securities covered by such
                registration statement to be listed on the principal US
                securities exchange on which similar securities issued by the
                Company are then listed (if any), if the listing of such
                Registrable Securities is then permitted under the rules of such
                exchange, or (ii) if no similar securities are then so listed,
                use its best efforts to cause all such Registrable Securities to
                be listed on a national securities exchange or, failing that,
                secure designation of all such Registrable Securities as a
                National Association of Securities Dealers, Inc. Automated
                Quotation System ("NASDAQ") "national market system security"
                within the meaning of Rule 11Aa2-1 of the Commission or, failing
                that, secure NASDAQ authorization for such securities and,
                without limiting the generality of the foregoing, take all
                reasonable commercial actions that may be required by the
                Company as the issuer of such Registrable Securities in order to
                facilitate the registration of at least two market makers as
                such with respect to such securities with the National
                Association of Securities Dealers, Inc. (the "NASD");

        (h)     provide and cause to be maintained a transfer agent and
                registrar for all such Registrable Securities covered by such
                registration statement not later than the effective date of such
                registration statement;

        (i)     deliver promptly to each Holder participating in the offering
                copies of all correspondence between the Commission and the
                Company, its counsel or auditors and all memoranda relating to
                discussions with the Commission or its staff with respect to the
                registration statement, other than those portions of any such
                correspondence and memoranda which contain information subject
                to attorney-client privilege with respect to the Company, and,
                upon receipt of such confidentiality agreements as the Company
                may reasonably request, make reasonably available for inspection
                by any seller of such Registrable Securities covered by such
                registration statement, and by any attorney, accountant or other
                agent retained by any such seller, all pertinent financial and
                other records, pertinent corporate documents and properties of
                the Company, and cause all of the Company's officers, directors
                and employees to supply all information reasonably requested by
                any such seller, attorney, accountant or agent in connection
                with such registration statement;

        (j)     use its reasonable commercial best efforts to obtain the
                withdrawal of any order suspending the effectiveness of the
                registration statement;

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        (k)     provide a CUSIP number for all Registrable Securities, not later
                than the effective date of the registration statement;

        (l)     furnish to each Holder participating in the offering, without
                charge, at least one signed copy of the registration statement
                and any post-effective amendments thereto, including financial
                statements and schedules, all documents incorporated therein by
                reference and all exhibits (including those incorporated by
                reference);

        (m)     cooperate with the selling Holders of Registrable Securities to
                facilitate the timely preparation and delivery of certificates
                not bearing any restrictive legends representing the Registrable
                Securities to be sold, and cause such Registrable Securities to
                be issued in such denominations and registered in such names in
                accordance with the instructions of the selling holders of
                Registrable Securities at least three business days prior to any
                sale of Registrable Securities; and

        (n)     take all such other commercially reasonable actions as are
                necessary or advisable in order to expedite or facilitate the
                disposition of such Registrable Securities.

        The Company may require as a condition precedent to the Company's
        obligations under this Section 2.2 that each seller of Registrable
        Securities as to which any registration is being effected furnish the
        Company such information regarding such seller and the distribution of
        such securities as the Company may from time to time reasonably request,
        provided that such information shall be used only in connection with
        such registration.

        Each Holder of Registrable Securities agrees that upon receipt of any
        notice from the Company of the happening of any event of the kind
        described in clause (v) of paragraph (e) of this Section 2.2, such
        Holder will discontinue such Holder's disposition of Registrable
        Securities pursuant to the registration statement covering such
        Registrable Securities until such Holder's receipt of the copies of the
        supplemented or amended prospectus contemplated by paragraph (e) of this
        Section 2.2 and, if so directed by the Company, will deliver to the
        Company (at the Company's expense) all copies, other than permanent file
        copies, then in such Holder's possession of the prospectus covering such
        Registrable Securities that was in effect at the time of receipt of such
        notice. In the event the Company shall give any such notice, the
        Effectiveness Period shall be extended by the number of days during such
        period from and including the date of the giving of such notice to and
        including the date when each seller of any Registrable Securities
        covered by such registration statement shall have received the copies of
        the supplemented or amended prospectus contemplated by paragraph (e) of
        this Section 2.2.

        If any such registration statement or comparable statement under "blue
        sky" laws refers to any Holder by name or otherwise as the Holder of any
        securities of the Company, then such Holder shall have the right to
        require (i) the insertion therein of language, in form and substance
        satisfactory to such Holder and the Company, to the effect that the
        holding by such Holder of such

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        securities is not to be construed as a recommendation by such Holder of
        the investment quality of the Company's securities covered thereby and
        that such holding does not imply that such Holder will assist in meeting
        any future financial requirements of the Company, or (ii) in the event
        that such reference to such Holder by name or otherwise is not in the
        judgment of the Company, as advised by counsel, required by the
        Securities Act or any similar federal statute or any state "blue sky" or
        securities law then in force, the deletion of the reference to such
        Holder.

2.3      REGISTRATION EXPENSES.
        (a)     "EXPENSES" shall mean any and all fees and expenses incident to
                the Company's performance of or compliance with this Agreement,
                including, without limitation: (i) Commission, stock exchange or
                NASD registration and filing fees and all listing fees and fees
                with respect to the inclusion of securities in NASDAQ, (ii) fees
                and expenses incurred in complying with United States or Israeli
                securities or state blue sky laws, (iii) printing expenses, (iv)
                messenger and delivery expenses, (v) fees and disbursements of
                counsel for the Company, (vi) fees and disbursements of all
                independent public accountants (including the expenses of any
                audit and/or "cold comfort" letter) and fees and expenses of
                other persons, including special experts, retained by the
                Company, (vii) fees associated with the issuance of the
                Company's American Depository Shares, evidenced by ADRs issued
                pursuant to the Deposit Agreement, dated as of January 24, 1996,
                by and among the Bank of New York, as depositary, the Company
                and holders of American Depositary Receipts (the "ADR
                FACILITY"), and (viii) fees and expenses, if any, relating to
                the maintenance, administration or amendment of the depository
                facility for the ADSs in connection with the sale of any
                Registration Securities (collectively, "EXPENSES").

        (b)     The Company shall pay all Expenses with respect to the
                registration contemplated by this Agreement whether or not such
                registration becomes effective or remains effective for the
                period contemplated by Section 2.1.

        (c)     Notwithstanding the foregoing, (x) the provisions of this
                Section 2.3 shall be deemed amended to the extent necessary to
                cause these expense provisions to comply with "blue sky" laws of
                each state in which the offering is made and (y) in connection
                with any registration hereunder, each Holder of Registrable
                Securities being registered shall pay all transfer taxes, if
                any, attributable to the Registrable Securities included in the
                offering by such Holder and (z) the Company shall, in the case
                of all registrations under this Agreement, be responsible for
                all its internal expenses (including, without limitation, all
                salaries and expenses of its officers and employees performing
                legal or accounting duties).

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2.4     NO REQUIRED SALE.
        Nothing in this Agreement shall be deemed to create an independent
        obligation on the part of any Holder to sell any Registrable Securities
        pursuant to any effective registration statement.

2.5     INDEMNIFICATION.
        (a)     In the event of any registration of any securities of the
                Company under the Securities Act pursuant to this Agreement, the
                Company will, and hereby does, indemnify and hold harmless, to
                the fullest extent permitted by law, the seller of any
                Registrable Securities covered by such registration statement,
                its directors, officers, fiduciaries, employees and stockholders
                or general and limited partners (and the directors, officers,
                employees and stockholders thereof), and each other Person, if
                any, who controls such seller within the meaning of the
                Securities Act, against any and all losses, claims, damages or
                liabilities, joint or several, actions or proceedings (whether
                commenced or threatened) in respect thereof ("CLAIMS") and
                expenses (including reasonable fees of counsel and any amounts
                paid in any settlement effected with the Company's consent,
                which consent shall not be unreasonably withheld or delayed) to
                which each such indemnified party may become subject under the
                Securities Act or otherwise, insofar as such Claims or expenses
                arise out of or are based upon (i) any untrue statement or
                alleged untrue statement of a material fact contained in any
                registration statement under which such securities were
                registered under the Securities Act or the omission or alleged
                omission to state therein a material fact required to be stated
                therein or necessary to make the statements therein not
                misleading, (ii) any untrue statement or alleged untrue
                statement of a material fact contained in any preliminary, final
                or summary prospectus or any amendment or supplement thereto,
                together with the documents incorporated by reference therein,
                or the omission or alleged omission to state therein a material
                fact required to be stated therein or necessary in order to make
                the statements therein, in the light of the circumstances under
                which they were made, not misleading, or (iii) any violation by
                the Company of any federal, state or common law rule or
                regulation applicable to the Company and relating to action
                required of or inaction by the Company in connection with any
                such registration, and the Company will reimburse any such
                indemnified party for any legal or other expenses reasonably
                incurred by such indemnified party in connection with
                investigating or defending any such Claim as such expenses are
                incurred; PROVIDED, HOWEVER, that the Company shall not be
                liable to any such indemnified party in any such case to the
                extent such Claim or expense arises out of or is based upon any
                untrue statement or alleged untrue statement of a material fact
                or omission or alleged omission of a material fact made in such
                registration statement or amendment thereof or supplement
                thereto or in any such prospectus or any preliminary, final or
                summary prospectus in reliance upon and in conformity with
                written information furnished to the Company by or on behalf of
                such indemnified party specifically for use therein; and

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<PAGE>

                PROVIDED, FURTHER, that in no event shall the Company indemnify,
                or be deemed to indemnify, any such Person in connection with
                any actions taken by such Person in his or her capacity as a
                director of the Company to the extent that such indemnification
                is not permitted by applicable law. Such indemnity and
                reimbursement of expenses shall remain in full force and effect
                regardless of any investigation made by or on behalf of such
                indemnified party and shall survive the transfer of such
                securities by such seller.

        (b)     Each Holder of Registrable Securities that are included in the
                securities as to which any registration under this Agreement is
                being effected shall, severally and not jointly, indemnify and
                hold harmless (in the same manner and to the same extent as set
                forth in paragraph (a) of this Section 2.5) to the extent
                permitted by law the Company, its officers and directors, each
                Person controlling the Company within the meaning of the
                Securities Act and all other prospective sellers and their
                directors, officers, general and limited partners and respective
                controlling Persons with respect to any untrue statement or
                alleged untrue statement of any material fact in, or omission or
                alleged omission of any material fact from, such registration
                statement, any preliminary, final or summary prospectus
                contained therein, or any amendment or supplement thereto, if
                such statement or alleged statement or omission or alleged
                omission was made in reliance upon and in conformity with
                written information furnished to the Company or its
                representatives by or on behalf of such Holder specifically for
                use therein and reimburse such indemnified party for any legal
                or other expenses reasonably incurred in connection with
                investigating or defending any such Claim as such expenses are
                incurred; PROVIDED, HOWEVER, that the aggregate amount which any
                such Holder shall be required to pay pursuant to this Section
                2.5(b) and Sections 2.5(c) and (e) shall in no case be greater
                than the amount of the net proceeds received by such person upon
                the sale of the Registrable Securities pursuant to the
                registration statement giving rise to such claim. Such indemnity
                shall remain in full force and effect regardless of any
                investigation made by or on behalf of such indemnified party and
                shall survive the transfer of such securities by such Holder.

        (c)     Indemnification similar to that specified in the preceding
                paragraphs (a) and (b) of this Section 2.5 (with appropriate
                modifications) shall be given by the Company and each seller of
                Registrable Securities with respect to any required registration
                or other qualification of securities under any state securities
                and "blue sky" laws.

        (d)     Any person entitled to indemnification under this Agreement
                shall notify promptly the indemnifying party in writing of the
                commencement of any action or proceeding with respect to which a
                claim for indemnification may be made pursuant to this Section
                2.5, but the failure of any indemnified party to provide such
                notice shall not relieve the indemnifying party of its
                obligations under the preceding paragraphs of this Section 2.5,
                except to the extent the indemnifying party is

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                materially prejudiced thereby and shall not relieve the
                indemnifying party from any liability which it may have to any
                indemnified party otherwise than under this Article 2. In case
                any action or proceeding is brought against an indemnified party
                and it shall notify the indemnifying party of the commencement
                thereof, the indemnifying party shall be entitled to participate
                therein and, unless in the reasonable opinion of outside counsel
                to the indemnified party a conflict of interest between such
                indemnified and indemnifying parties may exist in respect of
                such claim, to assume the defense thereof jointly with any other
                indemnifying party similarly notified, to the extent that it
                chooses, with counsel reasonably satisfactory to such
                indemnified party (who shall not, except with the consent of the
                indemnified party, be counsel to the indemnifying party), and
                after notice from the indemnifying party to such indemnified
                party that it so chooses, the indemnifying party shall not be
                liable to such indemnified party for any legal or other expenses
                subsequently incurred by such indemnified party in connection
                with the defense thereof other than reasonable costs of
                investigation; PROVIDED, HOWEVER, that (i) if the indemnifying
                party fails to take reasonable steps necessary to defend
                diligently the action or proceeding within 20 days after
                receiving notice from such indemnified party that the
                indemnified party believes it has failed to do so; or (ii) if
                such indemnified party who is a defendant in any action or
                proceeding which is also brought against the indemnifying party
                reasonably shall have concluded that there may be one or more
                legal defenses available to such indemnified party which are not
                available to the indemnifying party; or (iii) if representation
                of both parties by the same counsel is otherwise inappropriate
                under applicable standards of professional conduct, then, in any
                such case, the indemnified party shall have the right to assume
                or continue its own defense as set forth above (but with no more
                than one firm of counsel for all indemnified parties in each
                jurisdiction, except to the extent any indemnified party or
                parties reasonably shall have concluded that there may be legal
                defenses available to such party or parties which are not
                available to the other indemnified parties or to the extent
                representation of all indemnified parties by the same counsel is
                otherwise inappropriate under applicable standards of
                professional conduct) and the indemnifying party shall be liable
                for any expenses therefor. No indemnifying party shall, without
                the written consent of the indemnified party, effect the
                settlement or compromise of, or consent to the entry of any
                judgment with respect to, any pending or threatened action or
                claim in respect of which indemnification or contribution may be
                sought hereunder (whether or not the indemnified party is an
                actual or potential party to such action or claim) unless such
                settlement, compromise or judgment (A) includes an unconditional
                release of the indemnified party from all liability arising out
                of such action or claim and (B) does not include a statement as
                to or an admission of fault, culpability or a failure to act, by
                or on behalf of any indemnified party.

        (e)     If for any reason the foregoing indemnity is unavailable or is
                insufficient to hold harmless an indemnified party under
                Sections 2.5(a), (b) or (c),

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                then each indemnifying party shall contribute to the amount paid
                or payable by such indemnified party as a result of any Claim in
                such proportion as is appropriate to reflect the relative fault
                of the indemnifying party, on the one hand, and the indemnified
                party, on the other hand, with respect to such offering of
                securities. The relative fault shall be determined by reference
                to, among other things, whether the untrue or alleged untrue
                statement of a material fact or the omission or alleged omission
                to state a material fact relates to information supplied by the
                indemnifying party or the indemnified party and the parties'
                relative intent, knowledge, access to information and
                opportunity to correct or prevent such untrue statement or
                omission. If, however, the allocation provided in the second
                preceding sentence is not permitted by applicable law, then each
                indemnifying party shall contribute to the amount paid or
                payable by such indemnified party in such proportion as is
                appropriate to reflect not only such relative faults but also
                the relative benefits of the indemnifying party and the
                indemnified party as well as any other relevant equitable
                considerations. The parties hereto agree that it would not be
                just and equitable if contributions pursuant to this Section
                2.5(e) were to be determined by pro rata allocation or by any
                other method of allocation which does not take account of the
                equitable considerations referred to in the preceding sentences
                of this Section 2.5(e). The amount paid or payable in respect of
                any Claim shall be deemed to include any legal or other expenses
                reasonably incurred by such indemnified party in connection with
                investigating or defending any such Claim. No person guilty of
                fraudulent misrepresentation (within the meaning of Section
                11(f) of the Securities Act) shall be entitled to contribution
                from any person who was not guilty of such fraudulent
                misrepresentation. Notwithstanding anything in this Section
                2.5(e) to the contrary, no indemnifying party (other than the
                Company) shall be required pursuant to this Section 2.5(e) to
                contribute any amount in excess of the net proceeds received by
                such indemnifying party from the sale of Registrable Securities
                in the offering to which the losses, claims, damages or
                liabilities of the indemnified parties relate, less the amount
                of any indemnification payment made pursuant to Sections 2.5(b)
                and (c).

        (f)     The indemnity agreements contained herein shall be in addition
                to any other rights to indemnification or contribution which any
                indemnified party may have pursuant to law or contract and shall
                remain operative and in full force and effect regardless of any
                investigation made or omitted by or on behalf of any indemnified
                party and shall survive the transfer of the Registrable
                Securities by any such party.

        (g)     The indemnification and contribution required by this Section
                2.5 shall be made by periodic payments of the amount thereof
                during the course of the investigation or defense, as and when
                bills are received or expense, loss, damage or liability is
                incurred.

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3       "Market Stand-Off" Agreement/Black-Out Periods.

        (a)     During the Effectiveness Period, each Holder that, at any time
                within twenty (20) trading days prior to the effectiveness of
                the registration statement referred to below, owns 5% or more of
                the Company's issued and outstanding equity securities, if
                requested by the Company and the managing underwriter, shall
                agree that, during the period of ninety (90) days (or such
                lesser time period as is agreed to by all officers and directors
                of the Company and all holders of 5% or more of the Company's
                issued and outstanding equity securities) following the
                effective date of a registration statement of the Company filed
                under the Securities Act in connection with an underwritten
                offering, it shall not sell or otherwise transfer or dispose of
                (other than to donees or partners who agree to be similarly
                bound) any ADSs or Ordinary Shares of the Company held by it
                except any ADSs or Ordinary Shares of such Holder included in
                such registration; PROVIDED, HOWEVER, that any Holder that holds
                less than 5% of the Company's issued and outstanding equity
                securities for each of the twenty (20) trading days prior to the
                effectiveness of such registration statement may, commencing on
                the thirty-first (31st) day after the effective date of the
                registration statement, sell ADSs or Ordinary Shares
                representing up to the greater of (x) 1% of the Company's then
                issued and outstanding equity securities or (y) the average
                weekly trading volume of the Company's equity securities during
                the four week period ending on the effective date of the
                registration statement; and PROVIDED, FURTHER, that:

                (i)     the foregoing agreement by the Holder shall be in
                        writing in a form reasonably satisfactory to the Holder;

                (ii)    such agreement shall be applicable only to a
                        registration statement initiated by the Company which
                        covers ADSs or Ordinary Shares to be sold on its behalf
                        to the public in a firmly committed underwritten
                        offering; and

                (iii)   all officers and directors of the Company and all
                        holders of 5% or more of the Company's issued and
                        outstanding equity securities enter into similar
                        agreements.

                (b)     Notwithstanding anything herein to the contrary, the
                        Company shall be entitled to postpone or suspend (but
                        not for a period exceeding 60 days or until the Company
                        notifies the Holders of the termination of any black-out
                        period) the filing or effectiveness of a registration
                        statement otherwise required to be prepared and filed by
                        it pursuant to Section 2.1 or require the Holders not to
                        sell under the Shelf Registration Statement as provided
                        for under Section 2.1 if the Company determines, in its
                        good faith judgment, or if the managing underwriter for
                        any underwritten offering advises the Company in
                        writing, that such registration and offering, continued
                        effectiveness or sale would interfere with any material
                        financing, acquisition, disposition, corporate
                        reorganization or other material transaction involving
                        the Company or

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                        any of its subsidiaries or public disclosure thereof
                        would be required prior to the time such disclosure
                        might otherwise be required, or when the Company is in
                        possession of material information that it deems
                        advisable not to disclose in a registration statement (a
                        "VALID BUSINESS REASON BLACK-OUT PERIOD"), PROVIDED,
                        HOWEVER, that (A) the Holders shall not be prohibited
                        from selling ADSs or Ordinary Shares pursuant to the
                        Shelf Registration Statement for 120 days after the
                        Shelf Registration Statement is declared effective by
                        the Commission, (B) the aggregate number of days
                        included in all Valid Business Reason Blackout Periods
                        during any consecutive six (6) months shall not exceed
                        sixty (60) days and (C) there shall not be more than
                        four (4) Valid Business Reason Black-Out Periods during
                        any consecutive twelve (12) month period. The Company
                        shall not be entitled to initiate a Valid Business
                        Reason Black-Out Period unless it shall (i) to the
                        extent permitted or required by agreements with other
                        security holders of the Company, concurrently prohibit
                        sales by such other security holders under registration
                        statements covering securities held by such other
                        security holders during such Valid Business Reason
                        Blackout Period and (ii) concurrently prohibit purchases
                        and sales in the open market by directors and executive
                        officers of the Company during such Valid Business
                        Reason Blackout Period.

                (c)     Each Holder further acknowledges and agrees that such
                        Holder may have access to confidential information that
                        constitutes material non-public information regarding
                        the Company for purposes of the securities laws of the
                        United States, and that such laws prohibit any person
                        who has material non-public information about a company
                        from purchasing or selling securities of such company,
                        or from communicating such information to any other
                        person under circumstances in which it is reasonably
                        foreseeable that such person is likely to purchase or
                        sell such securities.


4       General.

4.1     ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
        The Company agrees that it shall not effect or permit to occur any
        combination or subdivision of shares or any change in the number of
        Ordinary Shares represented by each ADS unless and until the Company has
        filed a registration statement with the Commission (or duly amended an
        existing effective registration statement), such that, after giving
        effect to such combination, subdivision or change, there shall be a
        sufficient number of registered ADSs to represent all Ordinary Shares
        underlying Registrable Securities held by all of the Holders pursuant to
        this Agreement.


4.2     MERGERS, ETC.
        The Company shall not, directly or indirectly, enter into any merger,
        consolidation or reorganization in which the Company shall not be the
        surviving corporation unless the proposed surviving corporation shall,
        prior to such merger, consolidation or reorganization, agree in writing
        to assume the

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        obligations of the Company under this Agreement, and thereafter
        references hereunder to "Registrable Securities" shall be deemed to be
        references to the securities that the Holders of the Registrable
        Securities receive in exchange for Registrable Securities under any such
        merger, consolidation or reorganization; PROVIDED, HOWEVER, that the
        provisions of this Agreement shall not apply in the event of any merger,
        consolidation or reorganization in which the Company is not the
        surviving corporation if all Holders of Registrable Securities are
        entitled to receive in exchange for their Registrable Securities
        consideration consisting solely of (i) cash, (ii) securities of the
        acquiring corporation that may be immediately sold to the public without
        registration under the Securities Act or (iii) securities of the
        acquiring corporation that the acquiring corporation has agreed to
        register within 90 days of the completion of the transaction for resale
        to the public pursuant to the Securities Act.


4.3     RULE 144
        For so long as any Holder holds Registrable Securities and the Company
        is subject to the reporting requirements of the Securities Exchange Act
        of 1934, as amended (the "EXCHANGE ACT"), the Company covenants that it
        will timely file the reports required to be filed by it under the
        Securities Act or the Exchange Act (including, but not limited to, the
        reports under Sections 13 and 15(d) of the Exchange Act referred to in
        subparagraph (c)(1) of Rule 144 under the Securities Act), and will take
        such further action as any Holder of Registrable Securities may
        reasonably request, all to the extent required from time to time to
        enable such Holder to sell Registrable Securities without registration
        under the Securities Act within the limitation of the exemptions
        provided by (i) Rule 144 under the Securities Act, as such Rule may be
        amended from time to time, or (ii) any similar rule or regulation
        hereafter adopted by the Commission.


4.4     NOMINEES FOR BENEFICIAL OWNERS.
        If Registrable Securities are held by a nominee for the beneficial owner
        thereof, the beneficial owner thereof may, at its option, be treated as
        the Holder of such Registrable Securities for purposes of any request or
        other action by any Holder or Holders of Registrable Securities pursuant
        to this Agreement (or any determination of any number or percentage of
        Ordinary Shares constituting Registrable Securities held by any Holder
        or Holders of Registrable Securities contemplated by this Agreement);
        provided that the Company shall have received assurances reasonably
        satisfactory to it of such beneficial ownership.


4.5     AMENDMENTS AND WAIVERS.
         This Agreement may be amended, modified, supplemented or waived only
         upon the written agreement of the party against whom enforcement of
         such amendment, modification, supplement or waiver is sought.


4.6     NOTICES.
        Except as otherwise provided in this Agreement, notices and other
        communications under this Agreement shall be in writing and delivered

                                      259
<PAGE>

        personally, by telecopy (with confirmation sent within three business
        days by overnight courier) or by overnight courier, addressed to such
        party at the address set forth below:

                (i)     if to the Company, to:

                        [Nice]

                        with a copy to:

                        Brown Raysman Millstein Felder & Steiner LLP
                        900 Third Avenue
                        New York, NY 10022
                        Telecopy: (212) 895-2900
                        Attn: David M. Warburg, Esq.

                (ii)    if to the Initial Holder, to:

                        [Thales]

                        with a copy to:

                        Fried, Frank, Harris, Shriver & Jacobson
                        Suite 800
                        1001 Pennsylvania Ave., NW
                        Washington, DC   20004
                        Telecopy:  (202) 639-7004
                        Attn:  Andrew P. Varney, Esq.

        Each Holder, by written notice given to the Company in accordance with
        this Section 4.6 may change the address to which such notice or other
        communications are to be sent to such Holder. All such notices and
        communications shall be deemed to have been received on the date of
        delivery thereof, if delivered by hand, on the fifth day after the
        mailing thereof, if mailed, on the next day after the sending thereof,
        if by overnight courier, when answered back if telexed and when receipt
        is acknowledged, if telecopied.


4.7     MISCELLANEOUS.
                (a)     This Agreement shall be binding upon and inure to the
                        benefit of and be enforceable by the parties hereto and
                        the respective successors and assigns of the parties
                        hereto, whether so expressed or not. No Person other
                        than a Holder shall be entitled to any benefits under
                        this Agreement, except as otherwise expressly provided
                        herein. This Agreement and the rights of the parties
                        hereunder may be assigned by any of the parties hereto
                        to any transferee of Registrable Securities, provided
                        that such transferee agrees in writing to be bound by
                        this Agreement and the transfer restrictions set forth
                        in Schedule 11 to the Sale and Purchase Agreement in
                        respect of such Registrable Securities.

                                      260
<PAGE>

                (b)     This Agreement (with the documents referred to herein or
                        delivered pursuant hereto) embodies the entire agreement
                        and understanding between the parties hereto and
                        supersedes all prior agreements and understandings
                        relating to the subject matter hereof.

                (c)     This Agreement shall be construed and enforced in
                        accordance with and governed by the laws of the State of
                        New York without giving effect to the conflicts of law
                        principles thereof.

                (d)     The headings in this Agreement are for convenience of
                        reference only and shall not limit or otherwise affect
                        the meaning hereof. All Section references are to this
                        Agreement unless otherwise expressly provided.

                (e)     This Agreement may be executed in any number of
                        counterparts, each of which shall be an original, but
                        all of which together shall constitute one instrument.

                (f)     Any term or provision of this Agreement which is invalid
                        or unenforceable in any jurisdiction shall, as to such
                        jurisdiction, be ineffective to the extent of such
                        invalidity or unenforceability without rendering invalid
                        or unenforceable the remaining terms and provisions of
                        this Agreement or affecting the validity or
                        enforceability of any of the terms or provisions of this
                        Agreement in any other jurisdiction.

                (g)     It is hereby agreed and acknowledged that it will be
                        impossible to measure in money the damages that would be
                        suffered if the parties fail to comply with any of the
                        obligations herein imposed on them and that in the event
                        of any such failure, an aggrieved person will be
                        irreparably damaged and will not have an adequate remedy
                        at law. Any such person shall, therefore, be entitled to
                        injunctive relief, including specific performance, to
                        enforce such obligations, without the posting of any
                        bond and if any action should be brought in equity to
                        enforce any of the provisions of this Agreement, none of
                        the parties hereto shall raise the defense that there is
                        an adequate remedy at law.

                (h)     Each party hereto shall do and perform or cause to be
                        done and performed all such further acts and things and
                        shall execute and deliver all such other agreements,
                        certificates, instruments, and documents as any other
                        party hereto reasonably may request in order to carry
                        out the intent and accomplish the purposes of this
                        Agreement and the consummation of the transactions
                        contemplated hereby.

                                      261
<PAGE>

4.8     NO INCONSISTENT AGREEMENTS; SECURITIES REMAIN SUBJECT TO OTHER
        CONTRACTUAL RESTRICTIONS.
        Neither the Company nor any Holder has, prior to the date of this
        Agreement entered into, or will, on or after the date of this Agreement
        enter into, any agreement with respect to its securities which is
        inconsistent with the rights granted in this Agreement or otherwise
        conflicts with the provisions hereof. Notwithstanding this Agreement and
        the effectiveness of any Shelf Registration Statement, the Holder
        acknowledges that pursuant to the terms of the Sale and Purchase
        Agreement, the ADSs and Ordinary Shares issued to the Holder are subject
        to certain restrictions on transfer pursuant to Schedule 11 to the Sale
        and Purchase Agreement, including prohibitions on any transfers within
        the first year following their issuance, limitations on transfers in
        subsequent periods, and limitations on the manner of sale (including
        pricing) of ADSs and any American Depositary Receipts representing ADSs,
        and that such restrictions shall apply, in accordance with the terms of
        the Sale and Purchase Agreement to sales or other transfers proposed to
        be effected pursuant to any Shelf Registration Statement.

                                      262
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth above.


                                           [NICE]


                                           By:__________________________________

                                           Name:

                                           Title:




                                           [THALES]


                                           By:__________________________________

                                           Name:

                                           Title:


                                      263
<PAGE>

                              STANDSTILL AGREEMENT



        STANDSTILL AGREEMENT (this "AGREEMENT"), dated as of _____________, 2002
[TO BE DELIVERED AT, AND EFFECTIVE AS OF THE EXECUTION OF THE DEFINITIVE SALE
AND PURCHASE AGREEMENT], by and between [THALES] ("[THALES]"), a
________________ having an address at __________________ and [NICE] ("[Nice]"),
a ________________ having an address at __________________.



                                    RECITALS



        WHEREAS, Thales and Nice have entered into that certain Sale and
Purchase Agreement, dated as of _________, 2002 (the "SALE AND PURCHASE
AGREEMENT") whereby Thales has agreed to sell, and Nice has agreed to purchase,
the Business (as defined in the Sale and Purchase Agreement) as a going concern
and the Assets (as defined in the Sale and Purchase Agreement), either directly
or through its subsidiaries, upon the terms of the Sale and Purchase Agreement
(the "TRANSACTION"); and


        WHEREAS, Nice is an Israeli company whose American Depository Receipts
("ADRS") are listed on the NASDAQ Stock Market and is subject to the applicable
provisions of the Securities Act of 1933, the Securities and Exchange Act of
1934 (the "EXCHANGE ACT") and the rules and regulations promulgated by the
Securities and Exchange Commission and NASDAQ, and Thales will be required to
effect certain filings pursuant to those laws, rules and regulations from time
to time with respect to its ownership of ___________ Ordinary Shares and/or ADRs
evidencing such Ordinary Shares in Nice (the "NICE SHARES") issued as partial
consideration in the Transaction; and


        WHEREAS, as a material condition of Nice entering into the Sale and
Purchase Agreement, Nice requires that Thales execute and deliver this
Agreement; and


        WHEREAS, Nice and Thales have agreed that it is in their mutual
interests to enter into this Agreement as hereinafter described.


        NOW, THEREFORE, in consideration of the premises, covenants, and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

                                      264
<PAGE>

        1.      RESTRICTION ON CERTAIN ACTIONS.


                        (a)     During the term of this Agreement, neither
                                Thales nor any of its controlled Affiliates (as
                                such term is defined in Rule 12b-2 of Regulation
                                12B under the Exchange Act) (collectively, the
                                "THALES Group") will do any of the following
                                without the prior written consent of the Board
                                of Directors of Nice:


                (i)     acquire, offer to acquire, or agree to acquire, directly
                        or indirectly, including as part of a group (within the
                        meaning of Section 13(d)(3) of the Exchange Act), by
                        purchase or otherwise, beneficial ownership of any
                        securities or direct or indirect rights to acquire any
                        securities of Nice if, as a result of such acquisition:


                (A)     the securities so acquired or offered or agreed to be
                        acquired by any one or more members of the Thales Group,
                        together with all securities of Nice (excluding the
                        Share Consideration) acquired by all members of the
                        Thales Group within the twelve months preceding such
                        acquisition, in the aggregate represent or, if so
                        acquired, would represent more than two percent (2%) of
                        the number of Ordinary Shares of Nice issued and
                        outstanding as of the Completion Date (as defined in the
                        Sale and Purchase Agreement) after giving effect to the
                        Nice securities to be issued at Completion (as defined
                        in the Sale and Purchase Agreement); or


                (B)     the securities so acquired or offered or agreed to be
                        acquired by any one or more members of the Thales Group,
                        together will all securities of Nice (including any
                        portion of the Share Consideration) then beneficially
                        owned by any member of the Thales Group, in the
                        aggregate represent or, if so acquired would represent
                        more than twenty-four percent (24%) of the number of
                        Ordinary Shares of Nice issued and outstanding as of the
                        Completion Date after giving effect to the Nice
                        securities to be issued at Completion.


                (ii)    at any time during which Thales has one or more nominees
                        on the Board of Directors of Nice or during which Thales
                        has no nominees on the Board due to their voluntary
                        resignation, or due to an Acceptable Reason,

                                      265
<PAGE>


                (A)     grant any proxies (as defined in the Exchange Act) with
                        respect to any voting securities of Nice, or securities
                        convertible or exchangeable into such securities (except
                        as recommended by the Board of Directors of Nice) or
                        deposit any such securities in a voting trust or enter
                        into any other arrangement or agreement with respect to
                        the voting thereof; or


                (B)     make, or in any way participate in, directly or
                        indirectly, any solicitation of proxies to vote (as such
                        terms are used in the rules of the Securities and
                        Exchange Commission), or seek to advise or influence any
                        person or entity with respect to the voting of any
                        voting securities of Nice;


        PROVIDED that, notwithstanding the foregoing, Thales shall be entitled
        to accept or participate in any unsolicited proposal from any
        independent third party with respect to any of the transactions
        described in the foregoing clauses (A) and (B) on the same terms, and
        subject to the same conditions, as would apply to any other shareholder
        of Nice;


                (iii)   offer, propose, seek to enter into, make any public
                        announcement with respect to, or otherwise solicit (with
                        or without conditions), any acquisition transaction,
                        business combination or other similar extraordinary
                        transaction involving Nice or any of its subsidiaries or
                        any of its or their securities or assets; PROVIDED that,
                        notwithstanding the foregoing, Thales shall be entitled
                        to accept or participate in any unsolicited proposal
                        from any independent third party with respect to any
                        such transaction on the same terms, and subject to the
                        same conditions, as would apply to any other shareholder
                        of Nice; or


                (iv)    request Nice or any of its representatives, directly or
                        indirectly, to amend or waive any provision of this
                        Agreement.


        2. TERM. The term of this Agreement shall be for the period commencing
        on the date hereof and ending on the second anniversary of Completion
        (as defined in the Sale and Purchase Agreement); PROVIDED that this
        Agreement shall terminate, and be of no further force or effect,
        immediately upon

                                      266
<PAGE>

        termination of the Sale and Purchase Agreement; and PROVIDED, FURTHER
        that, in the event that, for any reason other than a Bona Fide Dispute
        or an Acceptable Reason (each as defined in Schedule 12 to the Sale and
        Purchase Agreement), Thales' nominees to the Board of Directors of Nice
        are not appointed or re-appointed by Nice, or are removed or replaced by
        Nice, this Agreement shall terminate and be of no further force or
        effect (but, for the avoidance of doubt, this Agreement will not
        automatically terminate upon the voluntary resignation of Thales'
        nominees).


        3.REMEDIES. Thales acknowledges and agrees that (i) the provisions of
        this Agreement are reasonable and necessary to protect the proper and
        legitimate interests of Nice and (ii) Nice would be irreparably harmed
        in the event that any of the provisions of this Agreement were not
        performed in accordance with their specific terms or were otherwise
        breached, making any remedy at law inadequate. Accordingly, Thales
        further acknowledges and agrees that (i) Nice shall be entitled to an
        injunction and/or injunctions to redress breaches or threatened breaches
        hereof and to specific performance, in addition to any other appropriate
        relief, all of the same being cumulative, and (ii) that Nice may apply
        to any court of competent jurisdiction for specific performance,
        injunctive or other relief to enforce this Agreement and/or to prevent
        any violation of it, and shall not be required to post any bond as a
        condition of procuring such injunctive or other equitable relief.


        4.      MISCELLANEOUS.


                4.1.    ENTIRE AGREEMENT. This Agreement and the Sale and
                        Purchase Agreement constitutes the entire agreement
                        between the parties hereto and supersedes any prior
                        understandings, agreements, or representations by or
                        between the parties, written or oral, to the extent they
                        relate in any way to the subject matter hereof.


                4.2.    SEVERABILITY. If any term, provision or restriction
                        contained in this Agreement is held invalid, void, or
                        unenforceable by a court of competent jurisdiction, the
                        remaining terms and provisions hereof shall remain in
                        full force and effect and shall in no way be affected,
                        impaired or invalidated.


                4.3.    SUCCESSOR AND ASSIGNS. This Agreement shall be binding
                        upon Thales and its respective heirs, personal
                        representatives, and successors, and shall inure to the
                        benefit of Nice and its successors and assigns.

                                      267
<PAGE>

                4.4.    GOVERNING LAW. This Agreement shall be governed by and
                        construed in accordance with the domestic laws of the
                        State of New York without giving effect to any choice or
                        conflict of law provision or rule (whether of the State
                        of New York or any other jurisdiction) that would cause
                        the application of the laws of any jurisdiction other
                        than the State of New York.


                4.5.    AMENDMENTS AND WAIVERS. No amendment of any provision of
                        this Agreement shall be valid unless the same shall be
                        in writing and signed by Nice. No waiver by Nice of any
                        default or breach hereunder, whether intentional or not,
                        shall be deemed to extend to any prior or subsequent
                        default or breach hereunder or affect in any way any of
                        Nice's rights arising by virtue of any prior or
                        subsequent such occurrence.


                        4.6. CONSTRUCTION. The parties hereto have participated
                        jointly in the negotiation and drafting of this
                        Agreement. In the event an ambiguity or question of
                        intent or interpretation arises, this Agreement shall be
                        construed as if drafted jointly by all of the parties
                        and no presumption or burden of proof shall arise
                        favoring or disfavoring any party by virtue of the
                        authorship of any of the provisions of this Agreement.


                        4.7. COUNTERPARTS. This Agreement may be executed in one
                        or more counterparts, each of which shall be deemed an
                        original but all of which together will constitute one
                        and the same instrument.


                                      268
<PAGE>


        y IN WITNESS WHEREOF, the parties hereto have caused this Standstill
Agreement to be executed by their duly authorized officers on the date first
above written.





                                              [THALES]





                                              By:___________________________

                                              Name:

                                              Title:





                                              [NICE]





                                              By:___________________________

                                              Name:

                                              Title:



                                      269
<PAGE>

                                   SCHEDULE 12

                         TRANSITIONAL SERVICES AGREEMENT






                                      270
<PAGE>

DATED                                                                       2001







                                   THALES (1)





                                       AND





                                    NICE (2)









                      -------------------------------------



                         TRANSITIONAL SERVICES AGREEMENT



                      ------------------------------------


                                      271
<PAGE>

CONTENTS





1        Definitions and Interpretation

2        Provision of Services

3        Service Fees

4        Vehicle Leases and Cards

5        Warranties and Limitations of Liability

6        Force Majeure

7        Modifications

8        Termination

9        Consequences of Termination

10       Sub-contracting, Assignment and Affiliates

11       Confidentiality

12       Entire Agreement and Variation of Terms

13       Waiver; Remedies

14       Severability of Provisions

15       Notices

16       Counterparts

17       Dispute Resolution

18       Governing Law and Jurisdiction



Schedules

1        Services

2        Vehicles

3        Terms and Conditions relating to Secondments


                                      272
<PAGE>

THIS AGREEMENT is made the           day of                                2002



BETWEEN:



(1)     [Thales] a French societe anonyme having its registered office at 173
        Boulevard Haussmann, Paris (75008) ("Thales"); and



(2)     [Nice] an Israeli company having its registered office at Hapnina
        Street, Raanana, 43107, Israel ("Nice")



BACKGROUND



(A)     Thales, Nice and others entered into an agreement for the sale and
        purchase of the business and assets of certain Thales subsidiaries on [
        ] July 2002 (the "Sale Agreement").



(B)     This Agreement is the Transitional Services Agreement referred to in the
        Sale Agreement and describes the arrangements for the provision of
        certain services and facilities by Thales and certain Affiliates of
        Thales to Nice on a temporary basis following Completion (as defined in
        the Sale Agreement).



(C)     This Agreement also makes provision relating to the assignment of leases
        of vehicles and the use of petrol cards.



IT IS AGREED AS FOLLOWS:



1       DEFINITIONS AND INTERPRETATION

                                      273
<PAGE>

1.1     Words and expressions defined in the Sale Agreement shall have the same
        meaning in this Agreement, and the following words and expressions in
        this Agreement shall have the meanings respectively set opposite them:

<TABLE>
<CAPTION>
<S>                                                  <C>

         "ACTUAL COSTS"                              has the meaning given at clause 3.2;



         "CARDS"                                     those petrol cards issued to employees  who
                                                     have the benefit of a company car;



         "CONTRACTS"                                 the PHH Lease Contract and the PHH Service
                                                     Contract and the HSBC Lease Contract;



         "DISPUTE RESOLUTION PROCEDURE"              the procedure for resolving disputes under this
                                                     Agreement described in clause 19;



         "HSBC LEASE CONTRACT"                       The Contract Hire Master Agreement dated 2
                                                     August 2001 between Thales Corporate Services
                                                     Limited and HSBC Vehicle Finance (UK) Limited as
                                                     amended by an Endorsement dated 2 August 2001;

</TABLE>

                                      274
<PAGE>

<TABLE>
<CAPTION>
<S>                                                  <C>

         "PHH LEASE CONTRACT"                        the Contract Hire Agreement dated 27 March 1997
                                                     between Racal Electronics Plc (now Thales
                                                     Electronics Plc) and PHH Vehicle Management
                                                     Services PLC (now Arval PHH Business Solutions
                                                     Limited) as amended by an Addendum Agreement
                                                     dated 25 July 2001;



         "PHH SERVICES CONTRACT"                     the Master Maintenance and Management Services
                                                     Agreement dated 13 August 1997 between Racal
                                                     Electronics Plc (now Thales Electronics Plc) and
                                                     PHH Vehicle Management Services PLC (now Arval
                                                     PHH Business Solutions Limited);



         "PHH VEHICLES"                              those vehicles details of which are at Part 1 of
                                                     Schedule 4;


         "PRIOR PERIOD"                              the 6-month period immediately preceding the
                                                     Completion Date;

         "SALE AGREEMENT"                            the agreement dated [ ] July 2002 made between
                                                     Thales, Nice and others;

         "SERVICE COMMENCEMENT DATE"                 the Completion Date;

         "SERVICE FEES"                              the amounts to be paid for the provision of the
                                                     Services pursuant to this Agreement;

         "SERVICE PROVIDER"                          the party noted in Schedule 1 as providing a
                                                     Service in accordance with this Agreement;

         "SERVICE PREMIUM"                           the amount being a percentage of Actual Costs
                                                     payable in respect of the Services as part of
                                                     the Service Fee and specified for each Service
                                                     at Schedule 1;
</TABLE>

                                      275
<PAGE>
<TABLE>
<CAPTION>
<S>                                                  <C>

        "SERVICE RECIPIENT"                          the party noted in Schedule 1 as receiving a
                                                     Service in accordance with this Agreement;

        "SERVICES"                                   the services numbered Service 1 to Service 9
                                                     more particularly described in Schedule 1;

        "SERVICE                                     TERMINATION DATE" the date noted in Schedule 1
                                                     as the service termination date for a given
                                                     service, or such later date as the parties may
                                                     agree in writing;

        "VEHICLES"                                   the PHH Vehicles and the HSBC Vehicles;.
</TABLE>

1.2     In this Agreement, unless the context otherwise requires:

        1.2.1   references to this Agreement include references to this
                Agreement, its Background and its Schedules as varied,
                supplemented and/or replaced in any manner from time to time;

        1.2.2   references to any party shall, where relevant, be deemed to be
                references to or to include, as appropriate, their respective
                lawful successors, assigns or transferees;

        1.2.3   references to the background, clauses, Schedules and
                sub-divisions of them are references to the Background and
                clauses of, and Schedules to, this Agreement and sub-divisions
                of them respectively;

        1.2.4   references to any enactment shall be deemed to include
                references to such enactment as re-enacted, amended or extended
                before the date of this Agreement and any subordinate
                legislation made from time to time under it;


                                      276
<PAGE>

        1.2.5   references to a "person" include any individual, company,
                corporation, firm, partnership, joint venture, association,
                organisation, institution, trust or agency, whether or not
                having a separate legal personality;

        1.2.6   references to the one gender include all genders and references
                to the singular shall include the plural and vice versa;

        1.2.7   headings are inserted for convenience only and shall be ignored
                in construing this Agreement;

        1.2.8   the words "company", "subsidiary", "subsidiary undertaking" and
                "holding company" have the meanings given to them by the
                Companies Act 1985.

2       PROVISION OF SERVICES

2.1     The Services shall be provided by the Service Provider to the Service
        Recipient, subject to and in accordance with the terms of this Agreement
        from the Service Commencement Date until the Service Termination Date
        unless otherwise terminated pursuant to this Agreement.

2.2     Any Service Provider may change part or all of the Services at any time
        to the extent such changes are:

        2.2.1   necessary to take account of legal or regulatory requirements
                affecting the Service or the Service Provider's business;

        2.2.2   required by a third party which has the right to require them.

        The Service Provider shall use its reasonable endeavours to provide the
        Service Recipient with as much notice as may be practicable of any such
        change.

                                      277
<PAGE>

2.3     A Service Provider shall be entitled to suspend all or any part of the
        Services until further notice on notifying the other either orally
        (confirmation in writing) or in writing with immediate effect in order
        to comply with an order, instruction of Government, an emergency
        services organisation or other competent administrative authority,
        provided that, where practicable the relevant Service Provider shall:

        2.3.1   give the Service Recipient reasonable prior notice in writing;
                and

        2.3.2   use its reasonable endeavours to minimise the disruption caused
                by and the duration of any such suspension.

2.4     The parties shall co-operate in endeavouring to ensure that at all times
        there are in place such contracts, licences and other consents of third
        parties as are necessary to enable the relevant Service Providers to
        provide the Services in accordance with this Agreement.

2.5     The Service Recipient shall provide all such information, data and
        materials as the Service Provider may reasonably require to enable it to
        supply the Services.

2.6     Thales will procure that each Service Provider performs and fulfils its
        duties and obligations as set out in this Agreement as if such Service
        Provider was a party to it.

2.7     Nice will procure that each Service Recipient performs and fulfils its
        duties and obligations as set out in this Agreement as if such Service
        Recipient was a party to it.

3       SERVICE FEES

3.1     Nice shall pay or procure the payment to the relevant Service Provider
        of the Service Fees for the Services in accordance with this clause.

                                      278
<PAGE>

3.2      The Service Fee for each Service shall be the actual costs incurred by
         the relevant Service Provider in providing the relevant Service
         ("Actual Costs"), including without limitation:

        3.2.1   the costs of, and associated with, any additional overheads as
                are reasonably necessary for the continued provision of the
                relevant Service; and

        3.2.2   the actual costs levied by third parties to enable the Service
                Provider to provide and the Service Recipient to receive the
                Services to the extent that such costs are not otherwise
                required to be incurred by the Service Provider for its own
                business purposes;

        plus the relevant Service Premium.

3.3     A statement of the Actual Costs and Service Premium and an invoice for
        the relevant Service Fee for each month shall be provided to the
        relevant Service Recipient in respect of each Service within six weeks
        of the end of that month period.

3.4     In respect of each Service, the Service Recipient shall pay to the
        Service Provider within 14 days of receipt of invoice, the full amount
        of such invoice without deduction, set off or counterclaim.

3.5     All amounts due under this Agreement shall be paid in full, in pounds
        sterling.

3.6     All overdue amounts payable under this Agreement shall bear interest at
        a rate of two per cent per annum over the base lending rate of Barclays
        Bank plc, calculated on a daily basis for the period from the due date
        of such payment up to and including the date of payment in full, whether
        before or after any judgement. Interest shall continue to accrue on a
        daily basis notwithstanding termination of this Agreement for any cause
        whatsoever.

                                      279
<PAGE>

3.7     In the event of a dispute, the parties shall use the Dispute Resolution
        Procedure provided that the monthly payments of Service Fees shall
        continue to be made during any use of the Dispute Resolution Procedure.

3.8     All charges and fees referred to in this Agreement are exclusive of all
        taxes and duties of any nature (including, but not limited to, Value
        Added Tax ("VAT") in the United Kingdom) which shall be payable in
        addition if required by law (subject, in the case of VAT to production
        of a proper VAT invoice ).

4       VEHICLE LEASES AND CARDS

4.1     Nice shall from the Completion Date (but subject to the provisions of
        this clause 4) carry out and perform for its own account, with respect
        only to the Vehicles, the Contracts.

4.2     Thales and Nice shall use their respective reasonable endeavours to
        procure that the other party to the Contracts shall consent to the
        Vehicles becoming subject to agreements between Nice and that other
        party in a form substantially the same as the Contracts and the removal
        of the Vehicles from the terms of the Contracts with effect from the
        Completion Date (whether by contract, assignment, novation or
        otherwise).

4.3     Nice shall indemnify and keep indemnified Thales and any Affiliate of
        Thales from and against all costs, claims, demands, liabilities,
        expenses or damages arising out of or in connection with the Contracts
        in respect of the period after the Completion Date, except where such
        cost, claim, demand, liability, expense or damage shall arise wholly or
        partly as a result of the failure by Thales or any Affiliate of Thales
        duly to perform and comply with the terms of the relevant Contract prior
        to the Completion Date.

4.4     If, after Completion, such consent as is referred to in clause 4.2 shall
        be sought but refused or is not obtained within fifty days of the
        Completion Date,

                                      280
<PAGE>

        the parties shall discuss alternative proposals in relation to the
        relevant Contracts and Vehicles and in default of agreement within a
        further period of ten days, Nice shall or shall procure that where
        failure of consent relates to:-

        i)      the PHH Lease Contract in respect of the PHH Vehicles, the PHH
                Vehicles are returned to Thales; and/or

        ii)     The HSBC Lease Contract in respect of the HSBC Vehicles, the
                HSBC Vehicles are returned to Thales;

        and in each or either case Nice shall indemnify and keep Thales and any
        Affiliate of Thales indemnified from and against all costs, claims,
        demands, liabilities, expenses or damages arising from such Contracts in
        the period from the Completion Date, including but not limited to the
        cost of termination of the leases of the Vehicles following the return
        thereof to Thales.

4.5     Nice shall indemnify and keep Thales and any Affiliate of Thales
        indemnified from and against all costs, claims, demands, liabilities,
        expenses or damages arising from the use at any time following the
        Completion Date, of the Cards.

5       WARRANTIES AND LIMITATIONS OF LIABILITY

5.l     Each Service Provider warrants that:

        5.1.1   the Services will be provided with reasonable skill and care and
                shall in all material respects be consistent with those Services
                as provided in the Prior Period;

        5.1.2   they will comply with all applicable laws in carrying out the
                Services and, in so far as they are able, retain all necessary
                licences, permissions and consents required to enable the other
                party to use the Services.

                                      281
<PAGE>

5.2     The Parties shall be liable inter se as expressly provided in this
        Agreement, but shall have no other obligation, duty or liability
        whatsoever in contract, tort or otherwise to the other in relation to
        the Services.

5.3     Notwithstanding any other provisions of this Agreement (other than
        clause 5.4) the aggregate liability of each party to the others shall be
        limited in respect of claims arising out of or in connection with the
        provision of the Services, the Service Provider replacing any
        non-conforming Service or otherwise refunding the Service Fee in
        relation to that Service.

5.4     Nothing in this Agreement shall exclude or restrict any party's
        liability for death or personal injury resulting from its negligence as
        defined in the Unfair Contract Terms Act 1977.

5.5     The Parties shall not be liable to each other under this Agreement in
        contract, tort or otherwise, including any liability for negligence, for
        any loss of revenue, business contracts, anticipated savings, profits or
        any indirect or consequential loss. For the purpose of this clause 5.5,
        "anticipated savings" means any expense which the party expects to avoid
        incurring or to incur in a lesser amount than would otherwise have been
        the case by reason of using the Services.

5.6     The provisions of this clause 5 shall continue to apply notwithstanding
        the termination or expiry of this Agreement.

6       FORCE MAJEURE

6.1     If either party is prevented, hindered or delayed from or in performing
        any of its obligations under this Agreement by a Force Majeure Event,
        then:

        6.1.1   that party's obligations under this Agreement shall be suspended
                for so long as the Force Majeure Event continues and to the
                extent that that party is so prevented, hindered or delayed;

                                      282
<PAGE>

        6.1.2   promptly after commencement of the Force Majeure Event that
                party shall notify the other party in writing of the occurrence
                of the Force Majeure Event, the date of commencement of the
                Force Majeure Event and the effects of the Force Majeure Event
                on its ability to perform its obligations under this Agreement;

        6.1.3   that party shall use all reasonable efforts to mitigate the
                effects of the Force Majeure Event upon the performance of its
                obligations under this Agreement; and

        6.1.4   immediately after the cessation of the Force Majeure Event that
                party shall notify the other party in writing of the cessation
                of the Force Majeure Event and shall resume performance of its
                obligations under this Agreement as soon as reasonably
                practicable.

6.2     For the purposes of this clause, "Force Majeure Event" means any event
        beyond the reasonable control of a party including, without limitation,
        strikes, lock-outs, labour disputes, industrial action, Acts of God,
        war, riot, civil Commotion, terrorist activities, market disruption such
        that relevant stock and other markets ate not able to open for business
        or to function properly, compliance with any law or governmental order,
        rule, regulation or direction of any overriding emergency procedures,
        storm or (insofar as the same are beyond such party's reasonable
        control) breakdown of plant or machinery, accident, fire, loss of power
        or technical failure of software or hardware.

6.3     Each party shall inform the other as soon as is practicable of any
        circumstances that are likely to affect the performance of its
        obligations hereunder.

7       MODIFICATIONS

                                      283
<PAGE>

7.l     At any time during the duration of this Agreement, any Service Recipient
        may request and any Service Provider may recommend changes to the
        Services. Any such changes to Services or new services agreed between
        the parties shall become "Services" for the purpose of this Agreement.

7.2     Except as otherwise stated, this Agreement may only be modified if such
        modification is in writing and signed by a duly authorised
        representative of each party.

8       TERMINATION

8.1     This Agreement shall commence on the Completion Date and, unless
        terminated in accordance with this clause 8 shall continue until the
        last Service Termination Date.

8.2     This Agreement may be terminated by the parties forthwith by written
        notice to the others if:

        8.2.1   the other party convenes a meeting of its creditors or if a
                proposal is made for a voluntary arrangement (within Part I of
                the Insolvency Act 1986) or a proposal for any other composition
                or scheme of arrangement with (or assignment for the benefit of)
                its creditors or if the other party is unable to pay its debts
                (within the meaning of section 123 of the Insolvency Act 1986)
                or if a trustee, receiver, administrative receiver or similar
                officer is appointed in respect of all or any part of the
                business or assets of that other party or if a petition is
                presented (and not discharged within 30 days) or a meeting is
                convened for the purpose of considering a resolution or other
                steps are taken (and are not withdrawn or otherwise negated
                within 30 days) for the winding up of that other party or for
                the making of an administrative order (otherwise than for the
                purpose of amalgamation or reconstruction) or if that party
                ceases to

                                      284
<PAGE>

                carry on business as a going concern or ceases to be in a
                position to fulfil this Agreement or suffers an event in a
                foreign jurisdiction analogous to or comparable with any of the
                foregoing; and

        8.2.2   there is a change of control (as defined in section 416 of the
                Income and Corporation Taxes Act 1988) of the other party other
                than by way of an intra-group reorganisation within that party's
                group;

        8.2.3   if the other party commits a material breach of an obligation
                under this Agreement and, if the breach is capable of remedy,
                does not remedy the breach within 14 days starting on the
                Business Day after receipt of notice from the first party of the
                breach.

8.3     The Service Recipient may terminate any Service which is provided to it
        under this Agreement on four weeks' written notice to Thales and the
        Service Provider.

9       CONSEQUENCES OF TERMINATION

9.1     In the event of termination for any reason whatsoever of this Agreement,
        Thales and Nice shall procure that all relevant members of their
        respective Groups shall:

        9.1.1   immediately cease to make use of the relevant Services;

        9.1.2   (at its own cost) promptly to return all documents, manuals,
                statements and other such materials, and all copies thereof, of
                whatever nature supplied under or in connection with such
                parties' performance hereunder and which contains confidential
                or proprietary information of the other party. If requested,
                each party shall certify that it has fully complied in all
                respects with this provision upon the return of any such
                documentation or materials;

                                      285
<PAGE>

        9.1.3   at the request and cost of a former Service Recipient provide
                that recipient or its agents with all reasonable assistance
                necessary to effect the transfer of the provision of the
                relevant Services to another third party supplier; . 9.1.4 for a
                reasonable period following termination, allow access to their
                premises on reasonable prior notice during normal business hours
                for the purpose of removing any or all of the Service
                Recipient's data, records and inventory.

9.2     Any termination of this Agreement shall, unless otherwise provided for
        herein, be without prejudice to any other rights or remedies to which
        either party may be entitled hereunder or at law and shall not affect
        any accrued rights or liabilities of either party nor the coming into
        force or the continuance in force of any provision hereof which is
        expressly or by implication intended to come into force or to continue
        in force on or after such termination.

9.3     The following clauses shall continue in force and remain operative
        notwithstanding termination of this Agreement for whatever reason: 4, 5,
        11, 13, 15, 17 and 18.

10      SUB-CONTRACTING, ASSIGNMENT AND AFFILIATES

        Neither party may assign or transfer any of its rights or obligations
        under this Agreement without the prior written consent of the other.

11      CONFIDENTIALITY

11.1    Each of the parties hereto agrees to keep confidential all confidential
        information disclosed pursuant to or in the performance of this
        Agreement and to use such information solely for the purposes of
        carrying out its obligations under this Agreement.

                                      286
<PAGE>

11.2    The provisions of clause 11.1 shall not apply to information which is
        publicly known or which subsequently becomes publicly known other than
        as a result of a breach of this clause 11.

12      ENTIRE AGREEMENT AND VARIATION OF TERMS

12.1    This Agreement, the Sale Agreement and the documents referred to
        therein, contains the entire agreement and understanding of the parties
        and supersedes all prior agreements, understandings or arrangements
        (both oral and written) relating to the subject matter of this
        Agreement. In case of conflict with the Sale Agreement and the documents
        referred to therein, the provisions of this Agreement shall take
        precedence with respect to the subject matter of this Agreement.

12.2    No variation of any of the terms of this Agreement (or of any other
        documents referred to herein) shall be effective unless made in writing
        and signed by or on behalf of each party.

13      WAIVER; REMEDIES

13.1    Any waiver of a breach of any of the terms of this Agreement or of any
        default hereunder shall not be deemed a waiver of any subsequent breach
        or default and shall in no way affect the other terms of this Agreement.

13.2    Except as otherwise specifically provided in this Agreement, no failure
        to exercise and no delay on the part of any party in exercising any
        right, remedy, power or privilege of that party under this Agreement and
        no course of dealing between the parties shall be construed or operate
        as a waiver thereof, nor shall any single or partial exercise of any
        right, remedy, power or privilege preclude any other or further exercise
        thereof or the exercise of any other right, remedy, power or privilege.

14      SEVERABILITY OF PROVISIONS

                                      287
<PAGE>

         If any provision of this Agreement is held to be illegal, invalid or
         unenforceable in whole or in part in any jurisdiction this Agreement
         shall, as to such jurisdiction, continue to be valid as to its other
         provisions and the remainder of the affected provisions and the
         legality, validity and enforceability of such provision in any other
         jurisdiction shall be unaffected .

15      NOTICES

15.1    Any notice or other communication to be given under this Agreement shall
        be in writing, shall be deemed to have been duly served on, given to or
        made in relation to a party if it is left at the authorised address of
        that party or sent by facsimile transmission to the fax machine situated
        at such address specified below and shall if:

        15.1.1  personally delivered, be deemed to have been received at the
                time of delivery; or

        15.1.2  posted to an inland address in the United Kingdom, be deemed to
                have been received on the second Business Day after the date of
                posting and if posted to an overseas address, be deemed to have
                been received on the fifth Business Day after the date of
                posting; or

        15.1.3  sent by facsimile transmission, be deemed to have been received
                upon receipt by the sender of a facsimile transmission report
                (or other appropriate evidence) that the facsimile has been
                transmitted to the addressee;

        Provided that where delivery or transmission occurs after 6.00 pm on a
        Business Day or at any time on a day which is not a Business Day,
        receipt shall be deemed to occur at 9.00 am on the next following
        Business Day.

                                      288
<PAGE>

15.2    For the purposes of this clause the authorised address of each party
        shall be the address set out below (including the details of the
        facsimile number and person for whose attention notice of communication
        is to be addressed) or such other address (and details) as that party
        may notify to the other in writing from time to time in accordance with
        the requirements of this clause:

        15.2.1  Thales:

                  173 Boulevard Haussmann
                  75415 Paris Cedex 08
                  France
                  Facsimile No:   00331 53 77 8263
                  Attention:      Pierre Charreton, Trade Group General Counsel

        Nice:

                  8 Hapnina Street
                  Raanana, 43107
                  Israel
                  Facsimile No:   001 927 9775 3520
                  Attention:      Koby Huberman

        with a copy to:

16      COUNTERPARTS

        This Agreement may be executed in any number of counterparts, each of
        which when executed and delivered shall be an original, but all of which
        when taken together shall constitute a single instrument.

17      DISPUTE RESOLUTION

                                      289
<PAGE>

17.1    Any question or difference of opinion which may arise between the
        parties concerning any aspect of the Services shall be referred in the
        first instance to senior management of the parties in dispute, who shall
        use their reasonable efforts to resolve the dispute.

17.2    In the event that a dispute cannot be resolved by agreement of the
        parties within 15 days, the parties shall refer the dispute to an expert
        to be agreed between the parties or, in default of agreement, to be
        appointed upon the application of any party by the President for the
        time being of the Law Society, such expert to act only as an expert and
        not as an arbitrator. Such person shall be instructed to reach his
        decision as soon as reasonably practicable. The decision of the expert
        shall (in the absence of fraud or manifest error) be final and binding
        on the parties. The fees or costs of such an expert and his appointment
        shall be borne by the parties equally, unless such expert shall decide
        one party has acted unreasonably, in which case he shall have discretion
        as to costs.

18      GOVERNING LAW AND JURISDICTION

18.1    This Agreement shall be governed by, construed and interpreted in
        accordance with English law.

18.2    Subject to the provisions of clause 17, the courts of England shall have
        exclusive jurisdiction to settle any claim, dispute or matter of
        difference which may arise out of or in connection with this Agreement
        (including, without limitation, claims for set-off or counterclaim) or
        the legal relationships established by this Agreement.

19      CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

        No person who is not a party to this Agreement shall have any rights
        under the Contracts (Rights of Third Parties) Act 1999 to enforce any
        term of this Agreement.


                                      290
<PAGE>

The parties have shown their acceptance of the terms of this Agreement by
executing it at the end of the Schedules.




                                      291
<PAGE>

                                   SCHEDULE 1

                                    SERVICES

SERVICE 1

Service Provider:                   Thales GeoSolutions (Australasia) Limited

Service Recipient:                  Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the
                                    Service Commencement Date

Service Premium:                    Nil

Service:                            Provision of office space and facilities at
                                    3 Powells Road, Brookvale, New South Wales
                                    2100,  Australia (the "Premises")

                                    Service Provider shall permit the T
                                    Fitzgerald and J Prince to have access to
                                    and use of the Premises on the same basis as
                                    such access and use has been provided by the
                                    Service Provider in the Prior Period.

SERVICE 2

Service Provider:                   Thales e-Security (Asia) Limited

Service Recipient:                   Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the
                                    Service Commencement Date

Service Premium:                    7%

Service:                            Provision of office space and facilities at
                                    Units 2205 - 2206, 22/F Vicwood Plaza, 199
                                    Des Voeux Road, Central Hong Kong, PRC (the
                                    "Premises")

                                    Service Provider shall permit the Alex Chang
                                    and Jenny Leung (the "HK Employees") to have
                                    access to and use of the Premises on the
                                    same basis as such access and use has been
                                    provided by the Service Provider in the
                                    Prior Period.

                                      292
<PAGE>

SERVICE 3

Service Provider:                   Thales e-Security (Asia) Limited

Service Recipient:                   Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the
                                    Service Commencement Date

Service Premium:                    7%

Service:                            Provision of residential apartment for the
                                    use of T McGinty (the "Premises").

                                    Service Provider shall permit T McGinty to
                                    continue to occupy the the Premises on the
                                    same basis as such occupation has been
                                    provided in the Prior Period.



SERVICE 4

Service Provider:                   Thales e-Security (Asia) Limited

Service Recipient:                   Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the
                                    Service Commencement Date

Service Premium:                    7%

Service:                            Secondment of the HK Employees.

                                    Service Provider shall make the services of
                                    the HK Employees available to the Service
                                    Recipient on the same basis as those
                                    services have been provided in the Prior
                                    Period and subject always to the overriding
                                    provisions of Schedule 3.


SERVICE 5


Service Provider:                   Thales GeoSolutions Netherlands BV

Service Recipient:                  Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the Service
                                    Commencement Date.

                                      293
<PAGE>

Service Premium                     5%

Service:                            Administration and payment of payroll in
                                    respect of C Van Gaalen on the same basis as
                                    such services have been provided to TCSL in
                                    the Prior Period.


SERVICE 6

Service Provider:                   Thales e-Security (Asia) Limited

Service Recipient:                  Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the Service
                                    Commencement Date

Service Premium                     5%

Service:                            Administration and payment of payroll in
                                    respect of T McGinty, A Chan and J Leung on
                                    the same basis as such services have been
                                    provided to TCSL in the Prior Period.


SERVICE 7

Service Provider:                   Thales Contact Solutions Limited

Service Recipient:                  Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the Service
                                    Commencement Date

Service Premium:                    7%

Service:                            Secondment of Hassan Hamada, Rajith Mathath
                                    and Richard Richardson (the "ME Employees").

                                    Service Provider shall make the services of
                                    the ME Employees available to the Service
                                    Recipient on the same basis as those
                                    services have been available to the Business
                                    in the Prior Period and subject always to
                                    the overriding provisions of Schedule 3.

SERVICE 8

Service Provider:                   Thales Contact Solutions Limited

Service Recipient:                  Nice CTI Systems UK Limited


                                      294
<PAGE>

Service Termination Date:           The date six months following the Service
                                    Commencement Date

Service Premium:                    7%

Service:                            The maintenance of the existing arrangement
                                    for the use of the UAE Office by the ME
                                    Employees.

                                    "UAE Office" means the office space at Al
                                    Makhari Building, Umm Harrier Road, PO Box
                                    6246, Dubai, UAE, the use of which is
                                    governed by an arrangement at Disclosure
                                    Document Q&R 76.


SERVICE 9

Service Provider:                   Thales GeoSolutions (Australia) (Pty)
                                    Limited

Service Recipient:                  Nice CTI Systems UK Limited

Service Termination Date:           The date six months following the Service
                                    Commencement Date.

Service Premium:                    5%

Service:                            Administration and payment of payroll in
                                    respect of T Fitzgerald and J Prince on the
                                    same basis as such services have been
                                    provided to TCSL in the Prior Period.


                                      295
<PAGE>

                                   SCHEDULE 2

                                    VEHICLES

              THOSE VEHICLES LISTED AT DISCLOSURE DOCUMENT UK.A.47.


                                      296
<PAGE>

                                   SCHEDULE 3

                  TERMS AND CONDITIONS RELATING TO SECONDMENTS


1       DURATION


        Subject to the terms of this Agreement, the Secondment will continue
        until the Service Termination Date.


2       SECONDMENT SERVICES


        During the Secondment, the Service Recipient will have the sole right to
        supervise and control the Employee. The Service Provider will have no
        knowledge of and therefore no responsibility for, and no liability with
        respect to the day to day activities of the Employee.


3       CONTINUING EMPLOYMENT BY SERVICE PROVIDER


3.1     During the Secondment, the Employee will remain employed by the Service
        Provider on the terms and conditions of employment subsisting as at the
        Completion Date (the "Employment Contract"). The Service Provider will
        second the Employee to the Service Recipient on the terms of the
        Employment Contract.


3.2     Nothing in this Agreement is intended to create a relationship of
        employer and employee between the Service Recipient and the Employee.


4       DUTIES OF SERVICE PROVIDER


4.1     The Service Provider will pay the Employee's salary and provide all
        contractual and other benefits to which the Employee is entitled under
        his Employment Contract.

                                      297
<PAGE>

4.2     The Service Provider will be responsible for making appropriate tax and
        other deductions from the Employee's remuneration, as may be required
        under applicable law. The Service Provider agrees to indemnify and keep
        indemnified the Service Recipient in respect of any claim that may be
        made by the relevant authorities against the Service Recipient for
        income tax or other deductions as may be required under applicable law
        in respect of the Employee.

5       DUTIES OF SERVICE RECIPIENT

5.1     The Service Recipient will maintain a record of the Employee's sickness
        and holiday absence and will notify the Service Provider of such absence
        and provide a copy of such record to the Service Provider on a monthly
        basis on or around the first day of each month.

5.2     The Service Recipient will provide the Service Provider with such
        information as it reasonably requires to comply with all applicable law
        relating to the Secondment.

6       TERMINATION OF EMPLOYMENT

6.1     If the Employee's employment with the Service Provider ends for any
        reason, the Secondment will automatically terminate. The Service
        Provider will not be required to second a replacement employee unless
        requested to do so by the Service Recipient, and then only on terms to
        be agreed between the parties.

6.2     The Service Recipient will indemnify and keep the Service Provider
        indemnified against any costs and expenses including, without
        limitation, statutory or contractual redundancy costs, incurred in
        relation to the termination of employment of the Employee where such
        termination of employment is by reason of redundancy on termination of
        the Employee's Secondment.

                                      298
<PAGE>

7       PROLONGED ABSENCE

        If the Employee is away from work for any reason for more than four
        consecutive weeks, the Service Recipient may terminate the Secondment on
        four weeks prior written notice. The Service Provider will not be
        required to second a replacement for any period of absence of the
        Employee unless requested to do so by the Service Recipient and then
        only on terms to be agreed between the parties.

8       TERMINATION

8.1     Either party may terminate the Secondment immediately by giving written
        notice to the other if:

        8.1.1   the Employee does or omits to do anything (whether in connection
                with the Secondment or not) which would allow the Service
                Provider to terminate his employment summarily; or

        8.1.2   the Service Provider dismisses the Employee, the Employee
                voluntarily resigns or the Employee's employment with the
                Service Provider ends for any reason; or

        8.1.3   the Employee acts in a way which is harmful in the reasonable
                opinion of the Service Recipient to the Service Recipient's
                business (whether in connection with the Secondment or not); or

        8.1.4   the Employee is guilty of dishonesty or is convicted of an
                offence (whether in connection with the Secondment or not).

8.2     If either party commits any material breach of their obligations under
        this Agreement the other may terminate this Agreement and the Secondment
        with immediate effect by written notice.

                                      299
<PAGE>

8.3     The Service Recipient shall be entitled to terminate the Secondment on
        four weeks prior written notice to the Serviced Provider if the Service
        Provider changes any of the Employee's terms and conditions such that
        the fees payable under clause 3 in respect of the Secondment are
        increased by more than 10%.

9       CONFIDENTIALITY

9.1     The Service Provider will not and will procure that the Employee will
        not use or disclose to any person including, without limitation, the
        Service Provider itself, any trade secrets or confidential information
        of the Service Recipient which the Employee receives or obtains during
        the Secondment. This restriction will continue after this Agreement
        ends.

9.2     The Service Provider will procure that, at the end of the Secondment or
        earlier if requested by the Service Recipient, the Employee returns to
        the Service Recipient all documents and other materials belonging or
        relating to the Service Recipient.

10      DISCIPLINARY MATTERS

        If any disciplinary or grievance matter arises in relation to the
        Employee during the Secondment, the Service Recipient will notify the
        Service Provider as soon as possible. The Service Provider will deal
        with the matter in accordance with its disciplinary or grievance
        procedure. The Service Recipient will provide whatever assistance is
        reasonably necessary.

11      PROPERTY DAMAGE

        The Service Recipient agrees to assume responsibility for and releases
        and agrees to defend and indemnify the Service Provider and its
        affiliates from and against any and all claims in respect of any damage
        to or loss of property

                                      300
<PAGE>

        owned by the Service Recipient, its affiliates or partners or their
        contractors and which is caused by the Employee whilst on Secondment.

12      DAMAGES

        In no event shall the Service Provider be liable, and the Service
        Recipient assumes responsibility, for any special, indirect or
        consequential damages, loss of profit, loss of revenue, loss of
        contract, loss of opportunity, loss of use of the facilities or other
        property, or business interruption or costs resulting from non-operation
        or increased expense of operation or maintenance, or costs of finance
        and any other similar types of losses suffered or incurred by the
        Service Recipient, howsoever caused to the extent that such losses are
        caused as a result of the actions of the Employee whilst on Secondment
        in the course of performing the Secondment Services.


                                      301
<PAGE>


Signed by......................................   )
for and on behalf of                              )
[THALES]                                          )




Signed by......................................   )
for and on behalf of                              )
[NICE]                                            )






                                      302
<PAGE>

                                   SCHEDULE 13

                       PRISM EARN-OUT CONSIDERATION TABLE



The Earn Out Consideration referred to in Clause 7.8 shall be calculated in
accordance with the table set out below:

<TABLE>
<CAPTION>

                  -------------------------------------------------------------------------------------------------

                  ------------------------------------------------------------------------------------------------
                  PRISM EARN-OUT CONSIDERATION TABLE (THE AMOUNTS SET FORTH BELOW ARE STAND ALONE FOR EACH
                  RESPECTIVE YEAR)
                  -------------------------------------------------------------------------------------------------

                  ACTUAL PRISM REVENUE IN CALENDAR YEAR        2002 EARN OUT     2003 EARN OUT      2004 EARN OUT
                  2002, 2003 OR 2004 (EURO)                        (US$)             (US$)              (US$)
                  ------------------------------------------ ----------------- ----------------- ------------------
<S>                                                          <C>               <C>               <C>
                  Less than EUR6 million                     0                 0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR6 million - under EUR7 million          $1 million        0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR7 million - under EUR8 million          $2 million        0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR8 million - under EUR9 million          $3 million        0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR9 million - under EUR10 million         $4 million        0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR10 million - under EUR12 million        $5 million        0                 0
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR12 million - under EUR14 million        $5 million        $1.5 million      $1.5 million
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR14 million - under EUR16 million        $5 million        $3 million        $3 million
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR16 million - under EUR18 million        $5 million        $4.5 million      $4.5 million
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR18 million - under EUR20 million        $5 million        $5 million        $5 million
                  ------------------------------------------ ----------------- ----------------- ------------------

                  EUR20 million and above                    $5 million        $7.5 million      $7.5 million
                  ------------------------------------------ ----------------- ----------------- ------------------
</TABLE>


                                      303
<PAGE>

                                   SCHEDULE 14

                                 IPR AGREEMENTS






                                      304
<PAGE>

DATED                                                                       2002
- --------------------------------------------------------------------------------






THALES CONTACT SOLUTIONS LIMITED

THALES ELECTRONICS PLC






- --------------------------------------------------------------------------------

                   ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS

- --------------------------------------------------------------------------------





                                      305
<PAGE>

THIS AGREEMENT is made on                                                   2002

BETWEEN

(1)     THALES CONTACT SOLUTIONS LIMITED (registered number 560700) whose
        registered office is at Western Road, Bracknell, Berks RG12 1RG (the
        "Assignor"); and

(2)     THALES ELECTRONICS PLC (registered number 497098) whose registered
        office is at Western Road, Bracknell, Berkshire RG12 1RG (the
        "Assignee").

BACKGROUND

(A)     The Assignor is the proprietor of the Assignor IPR (as defined below).

(B)     Thales SA has granted patent licences over all group patents, including
        the Patent Application, to Alcatel and Thomson Multimedia ("Cross
        Patents Licence Agreements").

(C)     The Assignor wishes to assign to the Assignee and the Assignee wishes to
        acquire the Assignor IPR on the terms and conditions set out below.

1       DEFINITIONS

1.1     In this Agreement the following expressions have the following meanings
        unless inconsistent with the context:

<TABLE>
<CAPTION>
<S>                                             <C>
        "ASSIGNOR IPR"                          All Intellectual Property Rights owned by
                                                Assignor including but not limited to the Trade
                                                Marks the Patent Application and the copyright
                                                and any design rights in the Copyright Works but
                                                excluding the Excluded Trade Marks.

        "COPYRIGHT WORKS"                       The works identified in SCHEDULE 3.

        "DOMAIN NAME"                           The domain name identified in Part 3 of Schedule 1

        "EXCLUDED TRADE MARKS"                  means the trade marks, service marks, brand
                                                names, certification marks, trade dress,
                                                business names and
</TABLE>

                                      306
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>

                                                other indications of origin and any Internet
                                                protocol addresses and networks, including
                                                domain names, e-mail addresses, and world wide
                                                web (www) and http addresses, network names,
                                                network addresses, and services which subsist of
                                                or include "Thales", "Thales Contract
                                                Solutions", Racal", "Thomson" or any confusingly
                                                similar work or any Thales, Racal or Thomson
                                                specific logos.
</TABLE>

                                      307
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>
        "INTELLECTUAL PROPERTY RIGHTS"          All intellectual property in any jurisdiction,
                                                whether registered, pending applications or
                                                unregistered, including without limitation: (a)
                                                all trade marks, service marks, brand names,
                                                certification marks, trade dress, business names
                                                and other indications of origin; (b) Patents;
                                                (c) trade secrets, know-how and other
                                                confidential or non-public business information,
                                                including ideas, manufacturing and production
                                                processes and techniques, research and
                                                development information, drawings,
                                                specifications, designs, source codes plans,
                                                proposals and technical data, business and
                                                marketing plans, market surveys, market know-how
                                                and customer lists and information; (d) writings
                                                and other copyright works, including computer
                                                programs, source code, object code and
                                                documentation (whether or not released), design
                                                right, architecture, database rights, and all
                                                copyrights and any non-registered copyrights to
                                                any of the foregoing; (e) integrated circuit
                                                topographies and mask works; (f) Internet
                                                protocol addresses and networks, including
                                                domain names, e-mail addresses, world wide web
                                                (www) and http addresses, network names, network
                                                addresses and services; (g) privacy and
                                                publicity rights; and (h) all other intellectual
                                                property rights of a similar nature or having
                                                equivalent or similar effect to these which may
                                                subsist anywhere in the world;

        "PATENT APPLICATION"                    the application for the grant of a patent
                                                particulars of which are contained in SCHEDULE 2
</TABLE>

                                      308
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>
        "PATENTS"                               any and all patents, patent applications
                                                (including letters patent, industrial designs,
                                                and inventor's certificates), design
                                                registrations, invention disclosures, and
                                                applications to register industrial designs, and
                                                any and all rights to any of the foregoing
                                                anywhere in the world, including any
                                                provisionals, substitutions, extensions,
                                                supplementary protection certificates,
                                                re-examinations, reissues, renewals, divisions,
                                                continuations in part (or in whole), continued
                                                prosecution applications, requests for continued
                                                examination, and other similar filings or
                                                notices provided for under the laws of any
                                                country;

        "REGISTERED TRADE MARKS"                the registered trade marks particulars of which
                                                are contained in PART 1 of SCHEDULE 1

        "TRADE MARK APPLICATIONS"               The trade mark applications identified in PART
                                                2 of SCHEDULE 1.

        "TRADE MARKS"                           the Registered Trade Marks and the trade marks
                                                the subject of the Trade Mark Applications and
                                                the Domain Name means the Software Licence and
                                                Service Agreement dated 1st

        "WORDNET 3 LICENCE"                     March 2002 between TCSL and Origin Data
                                                Realisation Limited;
</TABLE>

2       CONSIDERATION

        In consideration of the Assignor entering into this Agreement, the
        Assignee shall pay to the Assignor upon signature of this Agreement the
        sum of US$4,000,000 (four million US dollars) such sum to be left
        outstanding on inter-company loan account.

3       TRADE MARKS

                                      309
<PAGE>

3.1     The Assignor assigns to the Assignee absolutely with full title
        guarantee the Trade Marks including the goodwill in the Trade Marks and
        the full and exclusive benefit of each of them, including all statutory
        and common law rights and the right to sue for past infringements and to
        retain any damages obtained as a result of such action.

3.2     The Assignor agrees at the expense of the Assignee to execute such
        further documents, and take such actions and do such things, as may be
        reasonably requested by the Assignee to give full effect to the terms of
        this Agreement and to secure the full right, title and interest of the
        Assignee in the Trade Marks.

4       PATENT APPLICATION

4.1     The Assignor assigns to the Assignee absolutely with full title
        guarantee:

        4.1.1   the Assignor's right to apply for, prosecute and be granted the
                patent or obtain similar protection throughout the world for the
                invention(s) claimed in the Patent Application and any remaining
                right to claim priority therefrom (including under the Paris
                Convention for applications in countries or territories outside
                the UK), any remaining right to file continuations,
                continuations in part, divisionals or seek re-examination or
                re-issue, so that the grant of any patent or similar protection
                shall be in the name of and vest in the Assignee;

        4.1.2   all the rights of the Assignor to, and its title to and interest
                in, the Patent Application;

        4.1.3   all and any other rights and powers arising or accruing from the
                Patent Application, including without limitation the right to
                sue for damages and to have the benefit of any other remedies
                for infringement of any patents subsisting under the Patent
                Application occurring before the date of this Agreement.

        subject to the Cross Patents Licence Agreements.

4.2     The Assignor agrees at the expense of the Assignee to execute such
        further documents, and take such actions and do such things as may be
        reasonably requested by the Assignee, to give full effect to the terms
        of this Agreement, and to secure the full right title and interest of
        the Assignee in the Patent Application.

                                      310
<PAGE>

5       COPYRIGHT

5.1     The Assignor assigns to the Assignee absolutely with full title
        guarantee:

        5.1.1   any and all copyright and design right which it owns, if any, in
                the Copyright Works;

        5.1.2   all rights and powers arising or accrued from the Copyright
                Works, including without limitation the right to sue for damages
                and other remedies and to have the benefit of any remedy
                obtained on any supposed infringement of such Copyright Works
                before the date of this Agreement; and

        5.1.3   the right to apply for copyright and design protection in any
                part of the world in relation to all or any of the Copyright
                Works, including without limitation the right to apply for
                renewals and extensions.

5.2     The Assignor agrees at the expense of the Assignee to execute such
        further documents and take such actions and do such things as may be
        reasonably requested by the Assignee to give full effect to the terms of
        this Agreement (including without limitation assisting the Assignee in
        the resolution of any question concerning the Copyright Works) and to
        secure the full right, title and interest of the Assignee in the
        Copyright Works.

6       OTHER INTELLECTUAL PROPERTY RIGHTS

6.1     The Assignor assigns with full title guarantee all Assignor IPR (other
        than the Trade Marks, Patent Application and the copyright and design
        right in the Copyright Works which are dealt with above) to the Assignee
        absolutely.

6.2     The Assignor agrees at the expense of the Assignee to execute such
        further documents and take such actions and do such things as may be
        reasonably requested by the Assignee to give full effect to the terms of
        this Agreement and to secure the full right, title and interest of the
        Assignee to the Assignor IPR set out in clause 6.1 above.

7       WORDNET 3 SOFTWARE

7.1     The Assignor assigns to the Assignee all rights to which the Assignor is
        entitled under the Wordnet 3 Licence, subject to the obligations under
        the Wordnet 3 Licence.

                                      311
<PAGE>

7.2     The Assignor agrees that it shall do or procure the doing of all such
        acts and things and shall execute or procure the execution of all such
        documents as may be required to vest in the Assignee all rights granted
        under this clause 7 in accordance with this Agreement and otherwise to
        comply with its terms.

7.3.    The parties hereto agree to use reasonable endeavours to enter into a
        deed of novation with Origin Data Realisation Limited to novate the
        Wordnet 3 Licence in favour of the Assignee or any subsequent Assignee
        within 28 days of this Agreement.

8       COUNTERPARTS

        This Agreement may be executed in any number of counterparts, each of
        which so executed will be an original, but together will constitute one
        and the same instrument.

9       CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

        The parties to this Agreement do not intend that any of its terms will
        be enforceable by virtue of the Contracts (Rights of Third Parties) Act
        1999 by any person not a party to it.

10      GOVERNING LAW AND JURISDICTION

10.1    The formation, existence, construction, performance, validity and all
        aspects whatsoever of this Agreement or of any term of this Agreement
        will be governed by the law of England and Wales.

10.2    The courts of England and Wales will have non-exclusive jurisdiction to
        settle any disputes that may arise out of or in connection with this
        Agreement. The parties irrevocably agree to submit to that jurisdiction.

AS WITNESS the hands of the parties or their duly authorised agents for and on
behalf of the parties on the date stated at the beginning of this Agreement

Executed on behalf of       )
THALES CONTACT SOLUTIONS    )
LIMITED                     )
ASSIGNOR                    )
in the presence of:         )
                            Director
                            Director/Secretary

                                      312
<PAGE>

Executed on behalf of       )
THALES ELECTRONICS PLS      )
ASSIGNOR                    )
in the presence of:         )
                            Director

                            Director/Secretary



                                      313
<PAGE>
<TABLE>
<CAPTION>

                                                     SCHEDULE 1

                                         PART 1 - THE REGISTERED TRADE MARKS


- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

          Trademark                COUNTRY          APPLICATION      APPLICATION     REGISTRATION       RENEWAL
                                                                         DATE
                                                      NUMBER                            NUMBER            DATE
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------
<S>                            <C>               <C>                <C>            <C>                <C>
A-MUX LOGO                     UK                2059568            5/3/96         2059568            5/3/06
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

CALLMASTER                     Norway            912590             23/5/91        155604             11/3/03
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               UK                1452564            9/1/91         1452564            9/1/08
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

GEOSTORE                       UK                1007802            9/3/73         1007802            9/3/08
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

INVESTIGATOR                   CTM               1832823            31/8/00        1832823            31/8/10
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

MIRRA                          CTM               830786             21/5/98        830786             21/5/08
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               USA               75/508202          25/6/98        2476967            14/8/11
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

RAPIDAX                        USA               113149             7/11/90        1745086            5/1/03
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               UK                1444906            22/10/90       1444906            22/10/07
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

RENAISSANCE                    CTM               1307636            14/9/99        1307636            14/9/09
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

STOREHOUSE                     UK                1140237            13/9/80        1140237            13/9/11
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

STOREMED                       UK                1176989            18/6/82        1176989            18/6/03
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

STORENET                       UK                1049140            7/7/75         1049140            7/7/06
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

STOREPLEX                      France            92431479           24/8/92        92431479           24/8/02
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               Germany           R52808/9 WZ        21/8/92        2051506            21/8/02
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               USA               75/662730          18/3/99        2378956            22/8/10
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               UK                1509634            14/8/92        1509634            14/8/09
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

TIENNA                         CTM               1387570            18/11/99       1387570            18/11/09
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

TRUNKNET                       CTM               1133156            9/4/99         1133156            9/4/09
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

WORDNET                        France            9556446            24/3/95        9556446            24/3/05
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               Germany           39512614           22/3/95        39512614           22/3/05
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------
</TABLE>

                                                        314
<PAGE>
<TABLE>
<CAPTION>
<S>                            <C>               <C>                <C>            <C>                <C>
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------
                               USA               74/649882          20/3/95        2093445            2/9/07
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               UK                2013801            10/3/95        2013801            10/3/05
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

WORDSAFE                       Denmark           3542/91            2/10/92        9057/92            2/10/02
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               Norway            912591             23/5/91        153406             26/11/02
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               USA               107236             19/10/90       1745083            5/1/03
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               UK                1439866            7/9/90         1439866            7/9/07
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------


                                        PART 2 - THE TRADE MARK APPLICATIONS


- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

          Trademark                COUNTRY          APPLICATION      APPLICATION     REGISTRATION       RENEWAL
                                                                        DATE
                                                      NUMBER                            NUMBER            DATE
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

BIG PICTURE TECHNOLOGY         CTM               2052991            24/1/01
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

                               USA               76/288370          20/7/01
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

INVESTIGATOR                   USA               76/149047          18/10/00
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

RENAISSANCE                    USA               75/837065          1/11/99
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

TIENNA                         USA               75/924305          22/02/00
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------

TRUNKNET                       USA               75/698405          5/5/99
- ------------------------------ ----------------- ------------------ -------------- ------------------ -------------
</TABLE>


                                                PART 3 - DOMAIN NAME



                                                        315
<PAGE>
<TABLE>
<CAPTION>

                                                     SCHEDULE 2

                                               THE PATENT APPLICATION

<S>                <C>                <C>                <C>            <C>                <C>
- ------------------ ------------------ ----------------- -------------- --------------- -------------- ---------------

  PATENT TITLE     REGISTERED OWNER     APPLICATION     APPLICATION     PUBLICATION     PUBLICATION    INVENTOR(S)
                                           NUMBER       DATE               NUMBER          DATE
- ------------------ ------------------ ----------------- -------------- --------------- -------------- ---------------

VOICE ACTIVITY     Thales Contact     UK 9916430.3      13/7/99        GB 2352948      7/2/01         Neil Martin
MONITOR            Solutions                                                                          Crick
- ------------------ ------------------ ----------------- -------------- --------------- -------------- ---------------
</TABLE>


                                                        316
<PAGE>


                                   SCHEDULE 3

                               THE COPYRIGHT WORKS


COPYRIGHT & DESIGN RIGHTS IN SOFTWARE ITEMS REPRESENTED IN DESIGN DOCUMENTATION
AND SOURCE CODE LISTINGS.



- - Mirra Management Software

- - Wordnet Series 1 operating software

- - Wordnet Series 2 operating software (developed by Origin Data Realisation, IPR
owned by TCSL)

- - Tienna operating software (various releases leading to current release 7.0)

- - CMSU Software (various releases leading to current release 7.0)

- - RTT Replay to Turret Software (various releases leading to current release
7.0)

- - RSMA Renaissance System Management Application (various releases leading to
current release 7.0)

- - Replay Server software (various releases leading to current release 7.0)

- - SARA Search and Replay application

- - SARA NG Search and Replay application

- - RECO Radar and Voice Scenario Reconstruction Replay application

- - Investigator Search and Replay application (various releases leading to
  current release 7.0 but only up to 4.1 in general release)

- - Investigator RX (formerly Radio Replay) Scenario Reconstruction Replay
  application (various releases leading to current release 2.0)

- - AQM Agent Quality Management application (various releases leading to current
  release 3.0 but only up to 2.2 in general release)

- - Call Confirm & Last Message Replay - Last message Replay applications -both
release 1.0

- - MCC Media Control Centre application release 1.0

- - Wordnet Vendor Object recorder control software for Prism Integration
  (developed by Cliffstone, IPR owned by TCSL)

- - Renaissance Dashboard System Management application

- - QA Recorder screen and voice recording application (developed by Cliffstone,
IPR owned by TCSL)


                                       317
<PAGE>

- - Smart Logger application (incomplete - developed by Cliffstone, IPR owned by
TCSL)

- - RecorderLink recorder integration software (various releases leading to
current release 3.5)

- - Web Replay Application (not released)

- - Switch Decoder signal processing software (lengthy list of decoders for
various telephone switches)

- - Datax Converter software

- - Reecoute Immediate software (version 1.9)

- - Interface Servieur TCS software (version 1)

- - Convertisseur Wave TCS software (version 1)

- - Reecoute Immediate Software (Pocket PC) (version 1)

- - Reecoute Immediate TCS PC software (version 1)

- - Lien Centore 15 software (version 1)

- - Lien Centore 15 software (version 2)

- - Superviseur software



DATABASE DESIGN RIGHTS REPRESENTED IN DESIGN DOCUMENTATION



- - Tracker database design rights (MicroSoft JET technology)

- - Tienna database design rights (MicroSoft SQL Server technology)

- - CMSU database design rights (MicroSoft SQL Server technology)



ARCHITECTURE DESIGN RIGHTS REPRESENTED IN DESIGN DOCUMENTATION



- - Renaissance Architecture (various releases up to current release 7.0)



                                       318
<PAGE>




DATED                                                                       2002
- --------------------------------------------------------------------------------












THALES ELECTRONICS PLC

THALES CONTACT SOLUTIONS LIMITED











- --------------------------------------------------------------------------------

                                   LICENCE

- --------------------------------------------------------------------------------


                                      319
<PAGE>


THIS AGREEMENT is made on                           2002

BETWEEN

(1)     THALES ELECTRONICS PLC (Registered No 497098) whose registered office is
        at Western Road, Bracknell, Berkshire RG12 1RG ("the Licensor")

(2)     THALES CONTACT SOLUTIONS LIMITED (Registered No 560700) whose registered
        office is at Western Road, Bracknell, Berks RG12 1RG ("the Licensee")

1       DEFINITIONS

        In this Agreement the following expressions have the following meanings
        unless inconsistent with the context:

        "THE COMMENCEMENT DATE"                 The date of this Agreement

<TABLE>
<CAPTION>
<S>                                             <C>
        "THE DOMAIN NAME"                       The domain name identified in Part 3 of Schedule 1

        "COPYRIGHT WORKS"                       The works identified in SCHEDULE 3.

        "INTELLECTUAL PROPERTY RIGHTS"          All intellectual property in any jurisdiction, whether registered,
                                                pending applications or unregistered, including without limitation: (a)
                                                all trade marks, service marks, brand names, certification marks, trade
                                                dress, business names and other indications of origin; (b) Patents; (c)
                                                trade secrets, know-how and other confidential or non-public business
                                                information, including ideas, manufacturing and production processes and
                                                techniques, research and development information, drawings,
                                                specifications, designs, source codes plans, proposals and technical
                                                data, business and marketing plans, market surveys, market know-how and
                                                customer lists and information; (d) writings and other copyright works,
                                                Including computer programs, source code, object code and documentation
                                                (whether or not
</TABLE>

                                      320
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>

                                                released), design right, architecture, database rights, and all
                                                copyrights, and any non-registered. Copyrights to any of the foregoing;
                                                (e) integrated circuit topographies and mask works; (f) Internet
                                                protocol addresses and networks, including domain names, e-mail
                                                addresses, world wide web (www) and http addresses, network names,
                                                network addresses and services; (g) privacy and publicity rights; and
                                                (h) all other intellectual property rights of a similar nature or having
                                                equivalent or similar effect to these which may subsist anywhere in the
                                                world

        "THALES IPR ASSIGNMENT"                 The agreement executed of even date between Thales Contact Solutions
                                                Limited (as assignor) and Thales Electronics Plc (as assignee).

        "LICENSEE'S GROUP"                      Means the Licensee and any holding company of the Licensee and any
                                                subsidiaries of such holding company, holding and subsidiary having the
                                                meanings given in the Companies Act 1985 of the United Kingdom.

        "LICENSOR                               IPR" All Intellectual Property Rights acquired by the Licensor under the
                                                Thales IPR Assignment including but not limited to the Trade Marks, the
                                                Patents, the Patent Applications and the copyright and any design rights
                                                in the Copyright Works, other than the assignment of the rights under
                                                the Wordnet 3 Licence.

        "PATENTS"                               Any and all patents, patent applications (including letters patent,
                                                industrial designs, and inventor's certificates), design registrations,
                                                invention disclosures, and applications to register industrial designs,
                                                and any and all rights to any of the foregoing anywhere in the world,
                                                including any provisionals, substitutions,
</TABLE>

                                      321
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>

                                                extensions, supplementary protection certificates, re-examinations,
                                                reissues, renewals, divisions, continuations in part (or in whole),
                                                continued prosecution applications, requests for continued examination,
                                                and other similar filings or notices provided for under the laws of any
                                                country;

        "PATENT APPLICATION"                    The application for the grant of a patent particulars of which are
                                                contained in SCHEDULE 2

        "REGISTERED TRADE MARKS"                The trade marks particulars of which are contained in PART 1 of
                                                SCHEDULE 1

        "TRADE MARKS"                           The Registered Trade Marks and the trade marks the subject of

                                                the Trade Mark Applications and the Domain Names "TRADE MARK
                                                APPLICATIONS" The trade mark applications, particulars of which are
                                                contained in Part 2 of Schedule 1

        "WORDNET 3 LICENCE"                     Means the Software Licence and Service Agreement dated 1st March 2002
                                                between the Licensee and Origin Data Realisation Limited subsequently
                                                assigned to Thales Electronics plc under the Thales IPR Assignment.
</TABLE>

2       PERMISSION TO USE

2.1     The Licensor grants to the Licensee during the Term of this Agreement a
        licence to use the Licensor IPR with the right to sub-license for the
        Term of such Licensor IPR to members of the Licensee's Group.

2.2     The Licensor grants to the Licensee during the Term of this Agreement a
        sub-licence of the Wordnet 3 Licence so far as the Licensor is permitted
        to do so under the terms of the Wordnet 3 Licence.

                                      322
<PAGE>

3       CONSIDERATION

        The Licensee shall pay the Licensor the sum of US$32,050 per week in
        arrears during the Term.

4       OWNERSHIP OF THE LICENSOR IPR

4.1     The Licensee acknowledges that the Licensor IPR are and will remain the
        property of the Licensor, and the Licensee shall not acquire any title
        or interest in the Licensor IPR or goodwill as a result of the
        Licensee's use of them.

4.2     The Licensee shall not do or permit to be done, nor omit to do in
        connection with its use of the Licensor IPR, any act or thing which
        would or might jeopardise or invalidate any registration of the Licensor
        IPR or which might prejudice the right or title of the Licensor to any
        of the Licensor IPR.

5       TERM AND TERMINATION

5.1     This Agreement comes into effect on the Commencement Date and unless
        terminated earlier under the provisions of this Agreement remains in
        force until termination by either party giving to the other not less
        than three months' prior written notice ("the Term"). The Licence in
        relation to each Licensor IPR shall only remain in force so long as each
        Licensor IPR subsists.

5.2     Either party may terminate this Agreement by notice in writing to the
        other if the other is in material breach of this Agreement and shall
        have failed (where the breach is capable of remedy) to remedy the breach
        within 30 days of the receipt of a request in writing from the party not
        in breach to remedy the breach, such request setting out the breach and
        indicating that failure to remedy the breach may result in termination
        of this Agreement.

5.3     In addition to the powers of termination contained elsewhere in this
        Agreement the Licensor shall be entitled to terminate this Agreement
        immediately by notice in writing to the Licensee on any of the following
        grounds:

        5.3.1   the Licensee becomes the subject of voluntary arrangement under
                section 1 Insolvency Act 1986;

        5.3.2   the Licensee is unable to pay its debts within the meaning of
                section 123 Insolvency Act 1986;

                                      323
<PAGE>

        5.3.3   the Licensee has a receiver, manager, administrator or
                administrative receiver appointed over all or any parts of its
                undertaking, assets or income;

        5.3.4   the Licensee has passed a resolution for its winding-up;

        5.3.5   the Licensee has a petition presented to any court for its
                winding-up or for an administration order; or

        5.3.6   an analogous event happens in any other jurisdiction.

6       CONSEQUENCES OF TERMINATION

        The termination of this Agreement howsoever caused is without prejudice
        to the rights, duties and liabilities of either party accrued prior to
        termination. The clauses of this Agreement which expressly or impliedly
        have effect after termination will continue to be enforceable
        notwithstanding termination.

7       ASSIGNMENT

        The Licensee may not assign the benefit or delegate the burden of this
        Agreement without the prior written consent of the Licensor which shall
        not be unreasonably withheld or delayed. The Licensor may assign this
        Agreement on disposing of the Licensor IPR without the consent of the
        Licensee.

8       GOVERNING LAW AND JURISDICTION

8.1     This Agreement is governed by, and shall be construed in accordance with
        English law.

8.2     The courts of England and Wales shall have non-exclusive jurisdiction to
        settle any disputes which may arise out of or in connection with this
        Agreement. The parties agree to submit to such jurisdiction.

9       COUNTERPARTS

        This Agreement may be executed in any number of counterparts, and by the
        parties on separate counterparts, each of which so executed and
        delivered shall constitute an original, but all the counterparts shall
        together constitute one and the same instrument.

                                      324
<PAGE>

AS WITNESS the hands of the parties or their duly authorised agents for and on
behalf of the parties on the date stated at the beginning of this Agreement


Executed on behalf of           )
THALES ELECTRONICS PLC          )
LICENSOR                        )
in the presence of:             )

                                Director


                                Director/Secretary




Executed on behalf of           )
THALES CONTACT SOLUTIONS        )
LIMITED                         )
LICENSOR                        )
in the presence of:             )



                                Director


                                Director/Secretary



                                      325
<PAGE>
<TABLE>
<CAPTION>

                                                     SCHEDULE 1

                                         PART 1 - THE REGISTERED TRADE MARKS

<S>                            <C>               <C>                <C>              <C>              <C>
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

          Trademark                COUNTRY          APPLICATION       APPLICATION     REGISTRATION      RENEWAL
                                                                         DATE
                                                      NUMBER                             NUMBER           DATE
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

A-MUX LOGO                     UK                2059568            5/3/96           2059568          5/3/06
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

CALLMASTER                     Norway            912590             23/5/91          155604           11/3/03
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               UK                1452564            9/1/91           1452564          9/1/08
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

GEOSTORE                       UK                1007802            9/3/73           1007802          9/3/08
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

INVESTIGATOR                   CTM               1832823            31/8/00          1832823          31/8/10
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

MIRRA                          CTM               830786             21/5/98          830786           21/5/08
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               USA               75/508202          25/6/98          2476967          14/8/11
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

RAPIDAX                        USA               113149             7/11/90          1745086          5/1/03
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               UK                1444906            22/10/90         1444906          22/10/07
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

RENAISSANCE                    CTM               1307636            14/9/99          1307636          14/9/09
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

STOREHOUSE                     UK                1140237            13/9/80          1140237          13/9/11
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

STOREMED                       UK                1176989            18/6/82          1176989          18/6/03
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

STORENET                       UK                1049140            7/7/75           1049140          7/7/06
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

STOREPLEX                      France            92431479           24/8/92          92431479         24/8/02
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               Germany           R52808/9 WZ        21/8/92          2051506          21/8/02
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               USA               75/662730          18/3/99          2378956          22/8/10
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               UK                1509634            14/8/92          1509634          14/8/09
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

TIENNA                         CTM               1387570            18/11/99         1387570          18/11/09
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

TRUNKNET                       CTM               1133156            9/4/99           1133156          9/4/09
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

WORDNET                        France            9556446            24/3/95          9556446          24/3/05
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               Germany           39512614           22/3/95          39512614         22/3/05
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               USA               74/649882          20/3/95          2093445          2/9/07
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               UK                2013801            10/3/95          2013801          10/3/05
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

WORDSAFE                       Denmark           3542/91            2/10/92          9057/92          2/10/02
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               Norway            912591             23/5/91          153406           26/11/02
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

                               USA               107236             19/10/90         1745083          5/1/03
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------
</TABLE>

                                                        326
<PAGE>
<TABLE>
<CAPTION>
<S>                            <C>               <C>                <C>              <C>              <C>
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------

          Trademark                COUNTRY          APPLICATION       APPLICATION     REGISTRATION      RENEWAL
                                                                         DATE
                                                      NUMBER                             NUMBER           DATE
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------


- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------
                               UK                1439866            7/9/90           1439866          7/9/07
- ------------------------------ ----------------- ------------------ ---------------- ---------------- -------------




                                   PART 2 - THE REGISTERED TRADE MARK APPLICATIONS


- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

          Trademark               COUNTRY         APPLICATION     APPLICATION DATE    REGISTRATION      RENEWAL

                                                    NUMBER                               NUMBER           DATE
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

BIG PICTURE TECHNOLOGY         CTM             2052991            24/1/01
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

                               USA             76/288370          20/7/01
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

INVESTIGATOR                   USA             76/149047          18/10/00
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

RENAISSANCE                    USA             75/837065          1/11/99
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

TIENNA                         USA             75/924305          22/02/00
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------

TRUNKNET                       USA             75/698405          5/5/99
- ------------------------------ --------------- ------------------ ------------------ ---------------- -------------
</TABLE>



                                                PART 3 - DOMAIN NAME


bigpictech.com


                                                        327
<PAGE>
<TABLE>
<CAPTION>

                                   SCHEDULE 2

                             THE PATENT APPLICATION

<S>               <C>            <C>              <C>               <C>              <C>              <C>
- ----------------- -------------- ---------------- ----------------- ---------------- ---------------- ---------------

PATENT TITLE      REGISTERED     APPLICATION      APPLICATION DATE  PUBLICATION      PUBLICATION      INVENTOR(S)
                  OWNER          NUMBER                             NUMBER           DATE
- ----------------- -------------- ---------------- ----------------- ---------------- ---------------- ---------------

VOICE ACTIVITY    Thales         UK 9916430.3     13/7/99           GB 2352948       7/2/01           Neil Martin
MONITOR           Contact                                                                             Crick
                  Solutions
- ----------------- -------------- ---------------- ----------------- ---------------- ---------------- ---------------
</TABLE>



                                                        328
<PAGE>

                                   SCHEDULE 3


                               THE COPYRIGHT WORKS


COPYRIGHT & DESIGN RIGHTS IN SOFTWARE ITEMS REPRESENTED IN DESIGN DOCUMENTATION
AND SOURCE CODE LISTINGS.



- - Mirra Management Software

- - Wordnet Series 1 operating software

- - Wordnet Series 2 operating software (developed by Origin Data Realisation, IPR
owned by TCSL)

- - Tienna operating software (various releases leading to current release 7.0)

- - CMSU Software (various releases leading to current release 7.0)

- - RTT Replay to Turret Software (various releases leading to current release
7.0)

- - RSMA Renaissance System Management Application (various releases leading to
current release 7.0)

- - Replay Server software (various releases leading to current release 7.0)

- - SARA Search and Replay application

- - SARA NG Search and Replay application

- - RECO Radar and Voice Scenario Reconstruction Replay application

- - Investigator Search and Replay application (various releases leading to
  current release 7.0 but only up to 4.1 in general release)

- - Investigator RX (formerly Radio Replay) Scenario Reconstruction Replay
  application (various releases leading to current release 2.0)

- - AQM Agent Quality Management application (various releases leading to current
  release 3.0 but only up to 2.2 in general release)

- - Call Confirm & Last Message Replay - Last message Replay applications -both
release 1.0

- - MCC Media Control Centre application release 1.0

- - Wordnet Vendor Object recorder control software for Prism Integration
  (developed by Cliffstone, IPR owned by TCSL)

- - Renaissance Dashboard System Management application


                                       329
<PAGE>

- - QA Recorder screen and voice recording application (developed by Cliffstone,
IPR owned by TCSL)

- - Smart Logger application (incomplete - developed by Cliffstone, IPR owned by
TCSL)

- - RecorderLink recorder integration software (various releases leading to
current release 3.5)

- - Web Replay Application (not released)

- - Switch Decoder signal processing software (lengthy list of decoders for
various telephone switches)

- - Datax Converter software

- - Reecoute Immediate software (version 1.9)

- - Interface Servieur TCS software (version 1)

- - Convertisseur Wave TCS software (version 1)

- - Reecoute Immediate Software (Pocket PC) (version 1)

- - Reecoute Immediate TCS PC software (version 1)

- - Lien Centore 15 software (version 1)

- - Lien Centore 15 software (version 2)

- - Superviseur software



DATABASE DESIGN RIGHTS REPRESENTED IN DESIGN DOCUMENTATION



- - Tracker database design rights (MicroSoft JET technology)

- - Tienna database design rights (MicroSoft SQL Server technology)

- - CMSU database design rights (MicroSoft SQL Server technology)



ARCHITECTURE DESIGN RIGHTS REPRESENTED IN DESIGN DOCUMENTATION



- - Renaissance Architecture (various releases up to current release 7.0)


                                      330
<PAGE>

DATED                                                                       2002
- --------------------------------------------------------------------------------










THALES ELECTRONICS PLC

NIGHT

TRADER SA









- --------------------------------------------------------------------------------

                 ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS

- --------------------------------------------------------------------------------





                                      331
<PAGE>

THIS AGREEMENT is made on                                                   2002

BETWEEN

(1)     THALES ELECTRONICS PLC (registered number 560700) whose registered
        office is at Western Road, Bracknell, Berks RG12 1RG (the "Assignor");
        and

(2)     NIGHT [(registered number )] whose registered office is at (the
        "Assignee"); and

(3)     THALES SA a French societe anonyme having its registered office at 173,
        Boulevard Haussmann, Paris (75008) ("Thales").

BACKGROUND

(A)     The Assignor is the proprietor of the Assignor IPR assigned to it and
        has rights under the Wordnet 3 Licence (subject to certain obligations)
        pursuant to an Agreement dated [ ] with Thales Contact Solutions Limited
        attached at Schedule 1 ("the Thales IPR Assignment").

(B)     By an Agreement dated [ ] the Assignor has licensed the Assignor IPR and
        granted a sub-licence to the extent possible of the Wordnet 3 Licence to
        Thales Contact Solutions Limited ("the IPR Licence").

(C)     Thales has granted patent licences over all group patents, including the
        Patent Application, to Alcatel and Thomson Multimedia ("Cross Patents
        Licence Agreements").

(D)     By an Agreement dated [ ] ("the SPA") between Thales, Night and other
        purchasers, Thales has agreed to procure that the Assignor assigns the
        Assignor IPR and the rights under the Wordnet 3 Licence to the Assignee
        on the terms and conditions set out below subject to the terms and
        conditions of the SPA.

1       INTERPRETATION

        All defined terms (except for Assignor, Assignee and Thales, which shall
        have the meanings set out in this Agreement) shall have the meanings set
        out in the Thales IPR Assignment.

                                      332
<PAGE>

2       CONSIDERATION

        In consideration of the sum of US$4,000,000 (four million US dollars)
        paid by the Assignee to the Assignor, receipt of which the Assignor
        hereby acknowledges, the Assignor hereby enters into the terms of this
        Agreement.

3       ASSIGNMENT

        The Assignor assigns to the Assignee all such right, title and interest
        as it acquired in the Assignor IPR and the rights under the Wordnet 3
        Licence subject to the obligations in clause 7 of the Thales IPR
        Assignment under the Thales IPR Assignment subject to the IPR Licence
        and the Cross Patents Licence Agreements. The Assignor also assigns the
        right to sue for infringements of the Assignor IPR which have occurred
        since the Thales IPR Assignment and to retain any damages obtained as a
        result of such action.

4       FURTHER ASSURANCE

4.1     The Assignor agrees at its own expense to execute such further
        documents, and take such actions and do such things (including, without
        limitation, co-operating with the Assignee to enable the Assignee, at
        Assignee's cost promptly to record itself as the registered proprietor
        of any registered rights transferred to it under this Agreement), as may
        be reasonably requested by the Assignee to give full effect to the terms
        of this Agreement and to secure the full right, title and interest of
        the Assignee in the Assignor IPR.

4.2     The parties hereto agree to use reasonable endeavours to enter into a
        deed of novation with Origin Data Realisation Limited to novate the
        Wordnet 3 Licence in favour of the Assignee within 28 days of this
        Agreement.

5       REGISTRATION

        Assignee shall, at its cost, promptly record itself as registered
        proprietor of any registered rights transferred to it under this
        Agreement.

6       REMEDIES

        The Assignee agrees that if it has any claim for breach of this
        Agreement against either the Assignor and/or Thales then to the extent
        that such claim is

                                      333
<PAGE>

        capable of being the subject of a claim against Thales under the SPA, it
        shall bring such claim solely against Thales under the SPA and not
        against the Assignor and/or Thales under this Agreement.

7       COUNTERPARTS

        This Agreement may be executed in any number of counterparts, each of
        which so executed will be an original, but together will constitute one
        and the same instrument.

8       CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

        The parties to this Agreement do not intend that any of its terms will
        be enforceable by virtue of the Contracts (Rights of Third Parties) Act
        1999 by any person not a party to it.

9       GOVERNING LAW AND JURISDICTION

9.1     The formation, existence, construction, performance, validity and all
        aspects whatsoever of this Agreement or of any term of this Agreement
        will be governed by the law of England and Wales.

9.2     The courts of England and Wales will have non-exclusive jurisdiction to
        settle any disputes that may arise out of or in connection with this
        Agreement. The parties irrevocably agree to submit to that jurisdiction.

AS WITNESS the hands of the parties or their duly authorised agents for and on
behalf of the parties on the date stated at the beginning of this Agreement

                                      334
<PAGE>

Executed on behalf of           )
THALES ELECTRONICS PLC          )
ASSIGNOR                        )
in the presence of:             )


                                Director


                                Director/Secretary


Executed on behalf of           )
NIGHT                           )
ASSIGNEE                        )
in the presence of:             )


                                Director


                                Director/Secretary


Executed on behalf of           )
THALES SA                       )
in the presence of:             )


                                Director


                                Director/Secretary


                                      335
<PAGE>

DATED                                                                       2002
- --------------------------------------------------------------------------------








THALES CONTACT SOLUTIONS LIMITED

[UK Acquisition Co]

THALES ELECTRONICS PLC









- --------------------------------------------------------------------------------

                              DEED OF NOVATION

- --------------------------------------------------------------------------------


                                      336
<PAGE>

THIS DEED OF NOVATION is made on the day of                                 2002

BETWEEN

(1)     THALES CONTACT SOLUTIONS LIMITED (Registered Number 560700) whose
        registered office address is at Western Road, Bracknell, Berks RG12 1RG
        ("the Assignor")

(2)     [UK Acquisition Co] (Registered Number [NUMBER]) whose registered office
        is at [ADDRESS] ("the Assignee")

(3)     THALES ELECTRONICS PLC (registered number 497098)] whose registered
        office is at Western Road, Bracknell, Berkshire RG12 1RG ("the Third
        Party")

BACKGROUND

(A)     This novation deed is supplemental to a licence agreement between the
        Assignor and the Third Party dated [DATE] attached at Schedule 1 ("the
        IPR Licence") under which the Third Party granted the Assignor a licence
        to use Licensor IPR (as defined in the IPR Licence).

(B)     The Assignor has transferred its business to the Assignee pursuant to a
        Sale and Purchase Agreement of even date ("SPA") and the Third Party is
        assigning the Licensor IPR and the rights under the Wordnet 3 Licence
        (as defined in the IPR Licence)to the Assignee's holding company.

(C)     The Assignor wishes to be released from the IPR Licence and the Third
        Party agrees to release the Assignor in consideration of the Assignee's
        undertaking to perform the IPR Licence and to be bound in place of the
        Assignor.

OPERATIVE PROVISIONS

1       The Assignee undertakes to the Third Party to perform from the date of
        this Deed obligations on the Assignor's part contained in the IPR
        Licence and to be bound by the terms of the IPR Licence in every way as
        if the Assignee were a party to the IPR Licence from the date of this
        Deed instead of the Assignor.

                                      337
<PAGE>

2       In consideration of the undertaking of the Assignee in CLAUSE 1 and with
        the consent of the Third Party, the Assignor assigns all its rights
        (including without limitation any present, future or contingent interest
        or right to any sums or damages payable under or in connection with the
        IPR Licence) from the date of this Deed under the IPR Licence to the
        Assignee.

3       In consideration of the Assignor procuring the undertaking of the
        Assignee in CLAUSE 1, the Third Party releases and discharges the
        Assignor from all claims, obligations, demands and duties whatsoever in
        respect of the IPR Licence accruing from the date of this Deed and
        accepts the liability of the Assignee upon the IPR Licence instead of
        the liability of the Assignor for all claims, obligations, demands and
        duties accruing on or after the date of this Deed under the IPR Licence.

4       The Third Party undertakes with the Assignee to perform its liabilities
        and obligations under the IPR Licence as if the Assignee had at all
        times been party to the IPR Licence instead of the Assignor and
        acknowledges that the Assignee shall be entitled to enjoy the benefit of
        the IPR Licence instead of the Assignor.

5       The formation, existence, construction, performance, validity and all
        aspects whatsoever of this Deed or of any term of this Deed shall be
        governed by English law. The English courts shall have non-exclusive
        jurisdiction to settle any disputes which may arise out of or in
        connection with this Deed. The parties to this Deed agree to submit to
        that jurisdiction.

6       To the extent provided for in Clause 6 of the SPA, the Assignee agrees
        to indemnify, keep indemnified and hold harmless the Assignor from and
        against all costs (including the costs of enforcement), expenses,
        liabilities (including any tax liability), injuries, losses (which
        includes, without limitation, direct, indirect and consequential loss
        and loss of profit), damages, claims, demands, proceedings or legal
        costs (on a full indemnity basis) and judgments which the Assignor
        incurs or suffers as a consequence of a direct or indirect breach or
        negligent performance or failure in performance by the Assignee of the
        terms of the IPR Licence from the date of this Deed or of this Deed.

                                      338
<PAGE>

7       The parties to this Deed do not intend that any of its terms will be
        enforceable by virtue of the Contracts (Rights of Third Parties) Act
        1999 by any person not a party to it.

8       This Agreement may be executed in any number of counterparts, each of
        which so executed will be an original, but together will constitute one
        and the same instrument.

This document has been executed and delivered as a deed on the date stated at
the beginning of this Deed.

                                      339
<PAGE>

THE COMMON SEAL of                      )
THALES CONTACT SOLUTIONS                )
LIMITED                                 )
was affixed in the presence of:         )


                                        Director:


                                        Director/Secretary:





THE COMMON SEAL of                      )
[UK Acquisition Co]                     )
was affixed in the presence of:         )


                                        Director:


                                        Director/Secretary:


THE COMMON SEAL of                      )
THALES ELECTRONICS PLC                  )
was affixed in the presence of:         )


                                        Director:


                                        Director/Secretary:



                                      340
<PAGE>

                                   SCHEDULE 15

                         US BUSINESS TRANSFER AGREEMENT







                                      341
<PAGE>

                       ASSIGNMENT AND ASSUMPTION AGREEMENT


        THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "AGREEMENT") is entered
into as of ______________, _____,[COMPLETION DATE] by and among Trader SA, a
French societe anonyme having its registered office at 173 Boulevard Haussmann,
Paris, France (75008) ("TRADER"), Trader TRC, Inc., a Delaware corporation and
indirect wholly-owned subsidiary of Trader ("TRC"), Trader Contact Solutions
Inc., a Delaware corporation and wholly-owned subsidiary of TRC ("ASSIGNOR"),
Night-Systems Ltd., a company organized under the laws of Israel having its
registered office at 8 Hapnina Street, Ra'anana 43107, Israel ("NIGHT"), and
[Night/Trader US Acquisition Corp.], a [Delaware] corporation and wholly-owned
subsidiary of Night ("ASSIGNEE") .



                               W I T N E S S E T H

        WHEREAS, Trader, through certain of its wholly owned subsidiaries, is
engaged, among other things, in the business of the design, development,
production, marketing and supply of various secure voice recording, surveillance
and replay systems and products and application software for business
performance management solutions in contact centres, public safety and wholesale
trading platforms and the provision of ancillary services currently carried on
by the Assignors (the "BUSINESS");

        WHEREAS, Trader has agreed to sell, or procure the sale of, and Night
has agreed to purchase, substantially all of the assets of the Business, either
directly or through one or more of its subsidiaries;

        WHEREAS, Trader, Night, Assignee and certain of Night's other
subsidiaries (Night, Assignee and such other subsidiaries being collectively
referred to herein as the "PURCHASERS") have entered into that certain Sale and
Purchase Agreement dated as of ______________ __, 2002 (the "SALE AND PURCHASE
AGREEMENT") providing, subject to the terms and conditions set forth therein,
for the sale, transfer, assignment and delivery by Trader to the Purchasers of
the Business as a going concern and the Assets (each as defined in the Sale and
Purchase Agreement);

        WHEREAS, pursuant to Section 5.4.4 of the Sale and Purchase Agreement,
Trader has agreed to cause Assignor to sell to Assignee, and Assignee has agreed
to purchase from Assignor, that part of the Business operated as a going concern
by Assignor and all the Assets used in that part of the Business by Assignor
(the "US BUSINESS");

        WHEREAS, pursuant to Section 6.2.4 of the Sale and Purchase Agreement,
Assignee has agreed to assume that portion of the Assumed Liabilities (as
defined in the Sale and Purchase Agreement) as relates to the US Business (the
"US BUSINESS ASSUMED LIABILITIES"); and

        WHEREAS, Assignor is entering into this Agreement for the purpose of
assigning and transferring to Assignee all of Assignor's rights, liabilities and
obligations in and relating to the US Business pursuant to Section 5.4.4 of the
Sale and Purchase Agreement; and

        WHEREAS, Assignee is executing and delivering this Agreement for the
purpose of assuming the US Business Assumed Liabilities pursuant to Section
6.2.4 of the Sale and Purchase Agreement.

                                      342
<PAGE>

        NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and agreements contained herein and in the Sale and
Purchase Agreement, the parties hereto agree as follows:

        1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned to them in the Sale and
Purchase Agreement.

        2. ASSIGNMENT. Assignor, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby sells,
transfers, conveys, assigns and delivers to Assignee all of Assignor's right,
title, and interest in, to or under all of the Assets constituting the US
Business that are owned or held by them, including, without limitation, each of
the following as they relate to or comprise the US Business: the Goodwill and
any other intangible assets included as part of the Assets of the US Business,
the benefit of the Contracts, all of the rights against third parties
(including, without limitation, all rights in connection with such third party
guarantees, warranties, indemnities, restrictive covenants, confidentiality
obligations and representations and all rights of action of whatever kind
whether or not any proceedings have commenced) with respect to the US Business,
the Accounts Receivable, the Business Information, the Records, and all other
property rights and all other assets of whatsoever nature of any member of the
Trader Group used exclusively in relation to the US Business.

        3. ASSUMPTION. Assignee hereby accepts such assignment and assumes and
agrees to perform any and all of the US Business Assumed Liabilities from and
after the Completion Date, subject to the terms and conditions of the Sale and
Purchase Agreement. Except for the US Business Assumed Liabilities, Assignee is
not assuming any liabilities or obligations of Assignor or any of Assignor's
affiliates or of the Business of any kind, character or description, whether
known, unknown, accrued, absolute, contingent or otherwise and, except as
otherwise contemplated by the Sale and Purchase Agreement, Assignor and its
affiliates shall continue to be responsible for all such liabilities and
obligations other than the US Business Assumed Liabilities from and after the
Completion Date.

        4. BINDING AGREEMENT; AMENDMENTS. This Agreement shall be binding on
each of the parties and their respective heirs, representatives, successors and
assigns. This Agreement may not be modified except by an instrument in writing
which is signed by each of the parties.

        5. GOVERNING LAW. This Agreement, including all matters of construction,
validity and performance, shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
in such State and to be performed entirely within such State, without giving
effect to principles relating to conflicts of law.

                                      343
<PAGE>

        6. FURTHER ASSURANCES. Each of Assignor, TRC and Trader hereby covenants
and agrees that, from time to time at Assignee's or Night's request after
delivery of this Agreement and without further consideration, Assignor, TRC
and/or Trader, as the case may be, will do, execute, acknowledge and deliver, or
will cause to be done, executed, acknowledged and delivered, all and any such
further acts, conveyances, transfers, assignments, instruments and assurances as
may be reasonably required to effectively grant, convey, assign, transfer and
set over to and vest in Assignee any and all of the Assets of the US Business.

        7. OTHER AGREEMENTS PREVAIL. Assignor and Assignee hereby acknowledge
and agree that neither the representations and warranties nor the rights or
remedies of any party under the Sale and Purchase Agreement shall be deemed to
be enlarged, modified or altered in any way by this Agreement. In the event of a
conflict between the terms of this Agreement and the terms of the Sale and
Purchase Agreement, the terms of the Sale and Purchase Agreement shall prevail.

        8. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

                            [signature page follows]



                                      344
<PAGE>

        IN WITNESS WHEREOF, this Assignment and Assumption Agreement has been
duly executed as of the date first above written.

ASSIGNOR:                                  ASSIGNEE:
TRADER CONTACT SOLUTIONS INC.              [NIGHT/TRADER US ACQUISITION CORP.]



                                           By:    _____________________________
By:    _____________________________
                                                  Name:
       Name:
                                                  Title:
       Title:
                                           ACKNOWLEDGED AND AGREED:

ACKNOWLEDGED AND AGREED:
                                           NIGHT SYSTEMS LTD.


TRADER SA
                                           By:    _____________________________

                                                  Name:

                                                  Title:
By:    _____________________________

       Name:

       Title:


TRADER TRC, INC.




By:    _____________________________

       Name:

       Title:


                                      345
<PAGE>

                                  BILL OF SALE

        KNOW ALL MEN BY THESE PRESENTS, that TRADER CONTACT SOLUTIONS INC.
("SELLER"), a Delaware corporation and wholly-owned subsidiary of TRADER TRC,
INC. ("TRC"), which is itself a Delaware corporation and an indirect
wholly-owned subsidiary of TRADER SA, a French societe anonyme having its
registered office at 173 Boulevard Haussmann, Paris, France (75008)("TRADER"),
for good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, and intending to be legally bound, does hereby sell,
transfer, convey, set over and deliver to [Night/Trader US Acquisition Corp.]
("BUYER"), its successors and assigns, all of Seller's right, title and interest
in and to the Assets comprising the US Business (capitalized terms used, but not
defined in this bill of sale having the meanings ascribed thereto in that
certain Sale and Purchase Agreement dated as of ______________ __, 2002 by and
among Seller, Buyer, Trader, Night-Systems Ltd, a company organized under the
laws of Israel having its registered office at 8 Hapnina Street, Ra'anana,
Israel ("NIGHT") and certain other subsidiaries of Night (the "SALE AND PURCHASE
AGREEMENT")), including, without limitation, to the extent related to or
comprising the US Business, the Machinery and Equipment, the Fixtures and
Fittings, the Inventory and all other property rights and all other assets of
whatsoever nature used exclusively in relation to the Business.

        Seller hereby constitutes and appoints Buyer the true and lawful
attorney of Seller, with full authority and power of substitution, in the name
and stead of Seller, but on behalf and for the benefit of Buyer to demand and
receive any and all of such Assets, to give receipts and releases for and in
respect of the same, or any part thereof, and to execute on behalf of Seller
additional instruments of transfer and assignment and do all acts and things in
relation to such Assets which Buyer or Night shall deem reasonably required in
order to transfer and assign to and vest in Buyer full right and title to and in
all of such Assets.

        Seller hereby covenants that from time to time and at Buyer's request
and without further consideration, Seller shall do, execute, acknowledge and
deliver or shall cause to be done, executed, acknowledged and delivered all and
every such further acts, transfers, conveyances, assignments, powers of attorney
and assurances as reasonably may be required for assuring, conveying,
transferring, confirming and vesting unto Buyer of any of such Assets.

        Nothing in this instrument, express or implied, is intended or shall be
construed to confer upon, or give to, any person, firm or corporation other than
Buyer and its successors and assigns, any remedy or claim under or by reason of
this instrument or by any of its terms, covenants or conditions, and all the
terms, covenants and conditions, promises and agreements in this instrument
contained shall be for the sole and exclusive benefit of Buyer, its successors
and assigns.

                            [signature page follows]



                                      346
<PAGE>



        IN WITNESS WHEREOF, the undersigned have executed this Bill of Sale on
this _____ day of ___________________, ____.


                                                TRADER CONTACT SOLUTIONS INC.




        By:_____________________________

        Name:

        Title:





                                      347
<PAGE>

                  STOCK AND PROMISSORY NOTE PURCHASE AGREEMENT



        This STOCK AND PROMISSORY NOTE PURCHASE AGREEMENT (the "Agreement"),
dated as of __________ __, ___________ (the "Effective Date"), by and between
Trader TRC Inc., a corporation organized under the laws of the State of Delaware
("Seller") and [Night-Systems Ltd., a company organized under the laws of Israel
("Purchaser")]


        WHEREAS, Seller is the record owner of Three Million Three Hundred
Fifty-Six Thousand, Three Hundred Thirty-Five (3,356,335) shares of Series C
Convertible Preferred Stock, par value $1.00 per share (the "Cliffstone
Shares"), of Cliffstone Corporation ("Cliffstone");


        WHEREAS, Seller is a party to that certain Credit Agreement dated as of
September 10, 2001 between Cliffstone, as Borrower, and Seller, as Lender, as
amended by that certain First Amendment to Credit Agreement dated as of March
12, 2002 (the "Credit Agreement") and Seller is the holder and record owner of a
senior secured convertible promissory note, dated [March 12, 2002], in the
aggregate principal amount of One Million Five Hundred Thousand United States
Dollars (US$ 1,500,000) issued under the Credit Agreement by Cliffstone in favor
of Seller (the "Cliffstone Note");


        WHEREAS, Trader SA, a French societe anonyme having its registered
office at 173 Boulevard Haussmann, Paris, France (75008) and the parent entity
of Seller ("Trader"), Purchaser, and certain of Purchaser's subsidiaries have
entered into that certain Sale and Purchase Agreement dated as of ______________
__, 2002 (the "Sale and Purchase Agreement") providing, subject to the terms and
conditions set forth therein, for the sale, transfer, assignment and delivery by
Trader to Purchaser and its subsidiaries of the Business and Assets described
therein;


        WHEREAS, pursuant to Section 4 of the Sale and Purchase Agreement,
Trader has agreed to cause Seller to sell to Purchaser, and Purchaser has agreed
to purchase from Seller, the Cliffstone Shares and the Cliffstone Note;


        WHEREAS, Seller is entering into this Agreement for the purpose of
selling, assigning and transferring to Purchaser all of Seller's right, title
and interest in and to the Cliffstone Shares and the Cliffstone Note as
contemplated by the Sale and Purchase Agreement; and


        WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, subject to the terms and conditions set forth herein and
in the Sale and Purchase Agreement, all of the Cliffstone Shares and the
Cliffstone Note for the consideration set forth in the Sale and Purchase
Agreement.


                                      348
<PAGE>


        NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions contained herein and in the Sale and Purchase
Agreement (including the purchase price set forth in Section 7 of the Sale and
Purchase Agreement), the parties hereto, intending to be legally bound, hereby
agree as follows:


        SECTION 1. PURCHASE AND SALE OF THE CLIFFSTONE SHARES. Subject to the
terms and conditions set forth herein, Purchaser hereby agrees to purchase from
Seller, and Seller hereby agrees to sell, transfer and assign to Purchaser, all
of Seller's right, title and interest in and to the Cliffstone Shares for a
portion of the purchase price set forth in Section 7 of the Sale and Purchase
Agreement, payable and allocable as provided for in the Sale and Purchase
Agreement.


        SECTION 2. PURCHASE AND SALE OF THE CLIFFSTONE NOTE. Subject to the
terms and conditions set forth herein, Purchaser hereby agrees to purchase from
Seller, and Seller hereby agrees to sell, transfer and assign to Purchaser, all
of Seller's right, title and interest in and to the Cliffstone Note for a
portion of the purchase price set forth in Section 7 of the Sale and Purchase
Agreement, payable and allocable as provided for in the Sale and Purchase
Agreement.


        SECTION 3. CLOSING. Upon the terms and subject to the conditions set
forth herein, the consummation of the purchase and sale of the Cliffstone Shares
and the Cliffstone Note (the "Closing") shall occur simultaneously with, and at
the same location as, the completion of the transactions contemplated by the
Sale and Purchase Agreement. At the Closing, Seller shall deliver to Purchaser
stock certificates of Cliffstone (the "Certificates"), duly endorsed in blank or
accompanied by a stock power duly endorsed in blank and in proper form for
transfer, representing the Cliffstone Shares, together with the original,
manually executed copy of the Cliffstone Note, also duly endorsed and in proper
form for transfer to Purchaser.


        SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Purchaser as follows:


        4.1 BINDING EFFECT. This Agreement has been duly executed and delivered
by Seller and constitutes the legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms except as such
enforceability may be limited by (a) bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights generally, and (b)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.

                                      349
<PAGE>


        4.2 OWNERSHIP OF THE SELLER SHARES. Seller has good and valid title to
the Cliffstone Shares and the Cliffstone Note free and clear of all liens,
charges, claims or encumbrances that may have been created by Seller. To the
best of Seller's knowledge, there are no outstanding or authorized options,
warrants, rights, calls, commitments, conversion rights, rights of exchange or
other agreements of any character, contingent or otherwise, providing for the
purchase, issuance or sale of any of the Cliffstone Shares, or any arrangements
that require or permit any Cliffstone Shares to be voted by or at the discretion
of anyone other than Seller, and there are no restrictions of any kind on the
transfer of the Cliffstone Shares other than (a) restrictions on transfer set
forth in that certain Investor Rights Agreement, dated as of August 21, 2000, as
amended by Amendment No. 2 thereto, dated as of September 10, 2001 (as so
amended, the "Investor Rights Agreement"), (b) restrictions on transfer imposed
by the Securities Act of 1933, as amended (the "1933 Act"); and (c) restrictions
on transfer imposed by applicable state securities or "Blue Sky" laws.


        4.3 NO REQUIRED CONSENTS. Seller has obtained all consents and approvals
required with respect to the transfer of the Cliffstone Shares and the
Cliffstone Note to Purchaser as contemplated by this Agreement, including,
without limitation, any consents or approvals required under the terms and
conditions of the Investor Rights Agreement, the Credit Agreement or the
Cliffstone Note, and the Seller has otherwise complied in all respects with its
obligations under the Investor Rights Agreement in connection with the sale of
the Cliffstone Shares to Purchaser and under the Credit Agreement in connection
with the sale of the Cliffstone Note to Purchaser.


        4.4 NO FURTHER REPRESENTATIONS OR WARRANTIES. Seller makes no
representations or warranties except as expressly set forth herein.


        SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to Seller as follows:


        5.1 BINDING EFFECT. This Agreement has been duly executed and delivered
by Purchaser and constitutes the legal, valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its terms except as
such enforceability may be limited by (a) bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights generally and (b)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.


                                      350
<PAGE>

        5.2 INVESTMENT REPRESENTATIONS. Purchaser acknowledges, represents and
warrants to Seller as follows:


        (a) Purchaser acknowledges that neither the Cliffstone Shares nor the
Cliffstone Note have been registered under the 1933 Act or other applicable
federal or state statutes regulating the purchase and sale of securities.


        (b) Purchaser is acquiring the Cliffstone Shares and the Cliffstone Note
solely for its own account for the purpose of investment and not as a nominee or
agent for any other person and not with a view to, or for offer or sale in
connection with, any distribution thereof.


        SECTION 6. INDEMNIFICATION.


        6.1 Seller shall indemnify and hold harmless Purchaser, and its
respective heirs, agents, assigns, affiliates, successors and personal
representatives, from and against any and all damages, losses, obligations,
claims, actions or causes of action, encumbrances, costs, expenses (including
reasonable attorneys' fees incurred by Purchaser in any action or proceeding
between Seller and Purchaser) or other liabilities of any kind or nature
(collectively, "Damages") arising from the breach by Seller of any
representation, warranty or agreement made by Seller hereunder.


        6.2 Purchaser shall indemnify and hold harmless Seller, its officers,
directors, stockholders, affiliates and their respective heirs, agents, assigns,
affiliates, successors and personal representatives from and against any and all
Damages arising from the breach by Purchaser of any representation, warranty or
agreement made by Purchaser hereunder.


        6.3 The indemnification provisions set forth herein shall be the
exclusive remedy any party may have with respect to any and all Damages arising
out of the transactions contemplated by this Agreement.


        SECTION 7. ADDITIONAL TERMS.


        7.1 The representations, warranties, and agreements of Purchaser and
Seller contained herein shall survive the Effective Date without limit.


        7.2 Neither party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement prior to the
Closing without the prior written approval of the other party; PROVIDED,
HOWEVER, that any

                                      351
<PAGE>

party may make any public disclosure it believes in good faith, and upon the
advice of counsel, is required by applicable law (in which case the disclosing
party will advise the other party prior to making the disclosure and the wording
of such disclosure shall be mutually agreed to by the parties).


        7.3. Each of Seller and Purchaser will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.


        7.4 This Agreement (a) together with the Sale and Purchase Agreement and
the other agreements contemplated thereby, incorporates the entire understanding
and agreement of the parties and supersedes all previous agreements and/or
discussions between Purchaser and Seller solely with respect to the subject
matter hereof; (b) may not be amended or modified except in a writing executed
by Purchaser and Seller; and (c) shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without giving effect to such
State's conflict of laws principles.


        7.5 In any action or proceeding arising out of, related to, or in
connection with this Agreement, the parties consent to be subject to the
jurisdiction and venue of (a) the courts of the State of New York, and (b) the
United States District Court for the Southern District of New York. Each of the
parties consents to the service of process in any action commenced hereunder by
certified or registered mail, return receipt requested, or by any other method
or service acceptable under federal law or the laws of the State of New York.


        7.6 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.


        7.7 This Agreement shall be binding upon and shall inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.


                                      352
<PAGE>

        IN WITNESS WHEREOF, the parties hereto intending to be legally bound
hereby, have duly executed this Agreement as of the date first-above written.



                                     SELLER:



                                                TRADER TRC INC.







                                                By: _________________________

                                                Name:

                                                Title:





PURCHASER:



NIGHT-SYSTEMS LTD.





By: _________________________

Name:

Title:



                                      353
<PAGE>

                                   SCHEDULE 16

                       FRENCH BUSINESS TRANSFER AGREEMENT





SUMMARY OF FRENCH BUSINESS TRANSFER AGREEMENT

Agreement between:

Thales Contact Solutions SA(Seller)
             and
NICE Systems SARL(Buyer)


The agreement covers the transfer by Seller to Buyer of all of the assets
relating to the voice recording business of Seller in France including
customers, material,equipment ,contracts, etc. Buyer undertakes all of the
employment agreements with the Seller employees, the sub lease for Seller's
premises and receivables and payables relating to the transferred assets. The
agreement includes standard representations by TCS for the period commencing
April 2001, prior to which they did not own the business.
The agreement is subject to French Law.



                                      354
<PAGE>





                                   (NOT USED)





                                      355
<PAGE>



                                   SCHEDULE 17

                       GERMAN BUSINESS TRANSFER AGREEMENT



                                      356
<PAGE>

                            ASSET PURCHASE AGREEMENT
                            ------------------------

                  (hereinafter referred to as the "Agreement")




                                     Between



                          Trader Contact Solutions GmbH

                       Technologie Park Bergisch Gladbach

                             Friedrich-Ebert-Strasse

                             51429 Bergisch Gladbach

                        AG Bergisch Gladbach HRB No. 5492

                    (hereinafter referred to as the "Seller")



  duly represented by its managing director Clifford Francis Tomaszewski, with
                    power to represent the Seller on his own



                                       and



                               [German Purchaser]



                  (hereinafter referred to as the "Purchaser")

  duly represented by its managing director [________], with power to represent
                            the Purchaser on his own.


The managing director of the Seller is authorised to effect the transaction
contemplated in this Agreement by means of a shareholder resolution dated [___],
a certified copy of which is attached to Schedule [____] of the Sale and
Purchase Agreement.




                                    SECTION 1

                                     PARTIES

1.      The Seller is a limited liability company, incorporated under the laws
        of the Federal Republic of Germany, registered in the Commercial
        Register of Bergisch Gladbach under company registration number HRB
        5429.

                                      357
<PAGE>

2.      The Purchaser is registered at [ ].



                                    SECTION 2

           GENERAL DESCRIPTION OF THE SUBJECT MATTER OF THIS AGREEMENT


1.      The Seller intends to sell and to transfer its entire business as a
        going concern pursuant to the provisions of this Agreement to the
        Purchaser. For the purposes of the Agreement, the business shall mean
        the complete operations of the Seller, namely the business of the
        design, development, production, marketing and supply of various secure
        voice recording, surveillance and replay systems and products and
        application software for business performance management solutions in
        contact centres, public safety and wholesale trading platforms and the
        provision of ancillary services carried on by the Seller as at
        Completion Date (hereafter "the Business").


2.      The Seller and the Purchaser refer to the Sale and Purchase Agreement
        dated [___] between [TRADER SA and NIGHT] to which this Agreement has
        been attached. Unless specifically addressed in this Agreement, any
        provisions of the Sale and Purchase Agreement shall apply (with the
        necessary changes having been made) to the sale of the Business
        hereunder. The Sale and Purchase Agreement is - for this purpose -
        incorporated into this Agreement. 3. The effectiveness of this Agreement
        and the stipulations herein shall be subject to the Conditions as
        stipulated in the Sale and Purchase Agreement, in particular as outlined
        in clause 2 of the Sale and Purchase Agreement. Terms with capital
        letters shall, unless specified expressively herein, have the meaning as
        defined in the Sale and Purchase Agreement.


                                    SECTION 3

                                      SALE


1.      The Seller hereby sells as of the Completion Date and under the terms
        and conditions of the Sale and Purchase Agreement (and therefore under
        English law) to the Purchaser the Business as a going concern, in
        particular:


(1)     the Machinery and Equipment, in particular, but not exclusively, as
        listed in EXHIBIT [____];


(2)     the Fixtures and Fittings in particular, but not exclusively, as listed
        in EXHIBIT [____];

                                      358
<PAGE>

(3)     the Inventory in particular, but not exclusively, as listed in EXHIBIT
        [____];


(4)     the Goodwill and any other intangible assets in particular, but not
        exclusively, as listed in EXHIBIT [____];


(5)     the benefit of the Contracts in particular, but not exclusively, as
        listed in EXHIBIT [____];


(6)     all of the rights against third parties (including, without limitation,
        all rights in connection with such third party guarantees, warranties,
        indemnities, restrictive covenants, confidentiality obligations and
        representations and all rights of action of whatever kind whether or not
        any proceedings have been commenced) with respect to the Business in
        particular, but not exclusively, as listed in EXHIBIT [____];


(7)     the Business IPR in particular, but not exclusively, as listed in
        EXHIBIT [____];


(8)     the Accounts Receivable in particular, but not exclusively, as listed in
        EXHIBIT [____];


(9)     the Business Information in particular, but not exclusively, as listed
        in EXHIBIT [____];


(10)    the Records in particular, but not exclusively, as listed in EXHIBIT
        [____];

(11)    all other property rights and all other assets of whatsoever nature of
        any member of the Trader Group used exclusively in relation to the
        Business;


(12)    All exhibits referred to in this section reflect the status of the
        contents of the respective exhibits as of the date on each of the
        respective exhibits. Seller and Purchaser agree to update these exhibits
        as of the Signing and Completion Date mutually.


2.      The Purchaser accepts this sale.


3.      Excluded Assets shall not be sold.


                                      359
<PAGE>

                                    SECTION 4

                             TRANSFER OF THE ASSETS


1.      The Seller hereby transfers, and assigns title and possession of all
        assets enumerated specifically in section 3 (1) to (11) with effect as
        of the Completion Date. The parties shall transfer possession by means
        of a joint inspection on the Completion Date.


        The Purchaser accepts this transfer of title in the assets.


2.      If individual assets among the assets which are sold are not in the
        possession of the Seller as of today or the Completion Date the Seller
        herewith assigns as of the Completion Date its right to regain
        possession against whomever has possession at such time, either directly
        or indirectly, to the Purchaser instead of delivering such assets at the
        Closing. The Purchaser accepts such assignment.


3.      Should any of the above-mentioned assets have been delivered by a vendor
        to the Seller with reservation of ownership until the full purchase
        price has been paid, the Seller herewith assigns as of the Completion
        Date all rights to obtain full title to the Purchaser. The Purchaser
        accepts the assignment.


4.      The Parties agree that with transfer of the assets, all rights that
        relate to these assets and may be claimed and enforced against third
        parties will be passed on to the Purchaser as well.


5.      The Seller shall not assume any Excluded Liabilities under any of the
        foregoing provisions.





                                    SECTION 5

          TRANSFER OF AGREEMENTS, CONTRACTS AND RIGHTS AND LIABILITIES



1.      Any and all Contracts (and claims or rights resulting therefrom) in
        particular as listed in EXHIBIT [___], any other rights and/or claims
        even if they are not based on Contracts and Assumed Liabilities, in
        particular as listed in EXHIBIT [___], but not any Excluded Liabilities
        in particular as listed in EXHIBIT [___] are herewith assigned as of the
        Completion Date to the Purchaser. Purchaser accepts such

                                      360
<PAGE>

        assignment. Contrary to section 5(1) sentence 1 and section 8 (6) of
        this Agreement the agreements, contracts and/ or liabilities relating to
        the Business listed in EXHIBIT [___] shall not be assigned or
        transferred to the Purchaser.


2.      The Purchaser assumes - in its legal relation to the Seller - by way of
        assignment herewith with effect as of the Completion Date - any
        liabilities arising from these agreements with the consequence that the
        Seller is released from these obligations. Purchaser accepts such
        assignment.


3.      The Seller has already obtained the written consents from some
        contractual parties to the transfers of contracts. The respective
        consent notices are attached as EXHIBIT [____].]


4.      The Seller assigns and transfers as of the Completion Date to the
        Purchaser all rights, in particular as emanating from the services
        offered by the Seller to third parties still valid at the date of the
        Closing, in particular as listed in EXHIBIT [____]. The Seller accepts
        such assignment and transfer and also assumes with effect as of the
        Closing date any and all obligations which arose from these offers, with
        the effect of discharging the Seller from its obligations.


        The Seller assigns and transfers as of the Completion Date to the
        Purchaser all of the rights against third parties (including, without
        limitation, all rights in connection with such third party guarantees,
        warranties, indemnities, restrictive covenants, confidentiality
        obligations and representations and all rights of action of whatever
        kind whether or not any proceedings have been commenced) with respect to
        the Business in particular, but not exclusively, as listed in EXHIBIT
        [____]. Purchaser accepts such assignment.


5.      The Seller shall not assume any Excluded Liabilities under any of the
        foregoing provisions.


                                    SECTION 6

                                    EMPLOYEES


1.      The Purchaser assumes and honors the employment contracts of all active
        and non retired employees as of the Completion Date, the names of which
        are listed in EXHIBIT [___] to the extent as provided for by German law.


                                      361
<PAGE>

        The employees have been informed about the transaction by the Purchaser
        and the Seller by means of a letter substantially in the form as
        attached as Schedule [___].


                                    SECTION 7

                                 PURCHASE PRICE



        The purchase price for the Business shall be the amount determined in
        accordance with the Sale and Purchase Agreement (in particular, but not
        limited to clauses 7 and 8).


                                    SECTION 8

                                  MISCELLANEOUS



1.      Amendments and additions to this Agreement must be in writing. Written
        form can be waived only in writing.


2.      The Parties to this Agreement commit themselves to treat its content
        confidentially.


3.      The English Language version of this Agreement shall be the governing
        version for purposes of effectiveness, interpretation and construction
        of its terms. even if a German convenience translation may be rendered.


4.      This Agreement has been entered into to effect the valid sale of assets
        under English law (agreement to sell and transfer title in section 3
        hereafter) and transfer of title in assets under German law (section 4
        and 5 hereafter), such transfer to occur as provided for by clauses
        5.4.3 and 5.5. of the Sale and Purchase Agreement.


        The applicable law for clauses 4, 5 and 6 only of this Agreement are the
        laws of the Federal Republic of Germany. The UN Convention on the Sale
        of Goods shall be excluded. For any other provisions of this Agreement,
        the Laws of England shall govern. This choice of law provision shall be
        governed and construed in accordance with English law.

                                      362
<PAGE>

        The parties agree that any rights, obligations or remedies as regards
        the sale of the Business as contemplated in this Agreement and the Sale
        and Purchase Agreement shall only be exercised and can only be based on
        the rights, remedies and obligations as created by the Sale and Purchase
        Agreement.


5.      The English courts shall have non-exclusive jurisdiction.

6.      The parties to this Agreement acknowledge and agree that in case of a
        conflict between this Agreement and the Sale and Purchase Agreement the
        Sale and Purchase Agreement shall prevail.


7.      Should one or several provisions of this Agreement be null and void,
        display gaps or become unenforceable, the validity of this Agreement as
        such shall not be in question. Rather, this Agreement is to be
        interpreted and construed under such circumstances in a manner which
        allows for the preservation of the content and intent of the Parties as
        much and as widely as possible. The Parties herewith obligate one
        another to replace any invalid or unenforceable provision with a valid
        and enforceable one so that the economic meaning of the provision that
        is to be replaced is preserved as much as possible.






                             Datum/Date [..........]











                              ---------------------

                          Trader Contact Solutions GmbH



                                      363
<PAGE>


                         ------------------------------

                               [German Purchaser]






Exhibit 3(1):              Machinery and Equipment.


Exhibit 3(2):              Fixtures and Fittings.


Exhibit 3(3):              Inventory.


Exhibit 3(4):              Goodwill and Intangible Assets.


Exhibit 3(5):              Benefit of Contracts.


Exhibit                    3(6): All rights against third parties
                           (including, without limitation, all rights in
                           connection with such third party guarantees,
                           warranties, indemnities, restrictive covenants,
                           confidentiality obligations and representations
                           and all rights of action of whatever kind
                           whether or not any proceedings have been
                           commenced) with respect to the Business. [To the
                           extent not covered under Exhibit 3(5)].


Exhibit 3(7):              Business IPR.


Exhibit 3(8):              Accounts Receivable.


Exhibit 3(9):              Business Information.


Exhibit 3(10):             The Records.


Exhibit                    3(11): All other property rights and all other
                           assets of whatsoever nature of any member of the
                           Trader Group used exclusively in relation to the
                           Business.

                                      364
<PAGE>

Exhibit 5(1):              Contracts.


Exhibit 5(1)(2):           Rights and/or Claims not based on Contracts or
                           Assumed Liabilities.


Exhibit 5(1)(3):           Excluded Liabilities.


Exhibit 5(1)(4)            Excluded agreements, contracts and liabilities.


Exhibit 5(3):              Consent notices.


Exhibit                    5(4): Rights arising from Services offered by
                           Seller to third parties still valid at
                           Closing.[To the extent not covered under Exhibit
                           5(1)].


Exhibit                    5(4)(2): All rights against third parties
                           (including, without limitation, all rights in
                           connection with such third party guarantees,
                           warranties, indemnities, restrictive covenants,
                           confidentiality obligations and representations
                           and all rights of action of whatever kind
                           whether or not any proceedings have been
                           commenced) with respect to the Business. [To the
                           extent not covered under Exhibit 5(1)].



Exhibit 6(1):              Employment contracts of all active and non-retired
                           employees as of the Completion\ Date.



Exhibit 6(1)(2):           Agreed form of Letter of Information to Employees.


                                      365
<PAGE>

                                   SCHEDULE 18

                                    EMPLOYEES







                                      366
<PAGE>

                                   SCHEDULE 19



                               RELEVANT EMPLOYEES







                                      367
<PAGE>

                                   SCHEDULE 20

                                  KEY EMPLOYEES









                                      368
<PAGE>

                                   SCHEDULE 21

                                     PART A

                            2002 SALES DETERMINATION



1       PRINCIPLES FOR PREPARATION OF THE 2002 SALES STATEMENT


        The 2002 Sales Statement shall be prepared on the basis of US GAAP and
        subject to US GAAP, as adopted in the preparation of Nice's financial
        statements.


2       PREPARATION OF THE 2002 SALES STATEMENT


2.1     Nice shall procure that the Purchasers' management shall, as promptly as
        practicable, and in any event within 60 (sixty) days of 31 December 2002
        ("the First Period"), prepare and deliver to Thales and to Nice a draft
        of the 2002 Sales Statement together with a draft certificate (the
        "Nice's Accountant's Certificate") in the form set out in Part B of this
        Schedule 21 addressed to Thales and to Nice stating that the 2002 Sales
        Statement has been prepared in accordance with this Agreement.


2.2     Thales and Nice shall attempt to agree the draft 2002 Sales Statement as
        soon as possible and in any event within 30 (thirty) days (the "Second
        Period") after receipt of the same under paragraph 2.


2.3     During the Second Period, Thales' Accountants shall be entitled to call
        for an inspection of such documents as they shall reasonably consider
        necessary. Nice shall procure that the Companies, the Purchasers and
        Nice's Accountants respectively shall give each other and to Thales'
        Accountants access to all of their records, working papers or other
        information used as a basis for preparing the 2002 Sales Statement and
        access to personnel as may reasonably be required for the purposes of
        considering and agreeing the 2002 Sales Statement.


                                      369
<PAGE>


2.4     Unless within the Second Period Thales notifies Nice in writing (setting
        out the adjustments, if any, which it proposes should be made to the
        draft 2002 Sales Statement the draft 2002 Sales Statement shall be
        deemed to be agreed and shall, save in the event of fraud or manifest
        error, become final and binding on Thales and Nice for the purposes of
        this Agreement.


2.5     If by the end of the Second Period the draft 2002 Sales Statement has
        not been agreed, Thales shall meet with Nice so as to resolve in good
        faith any differences within the following 7 (seven) days (the "7 Day
        Period"). After the expiry of the 7 Day Period either Nice or Thales may
        refer the matters in dispute to the Independent Accountants. The
        Independent Accountants shall agree, amend or prepare the 2002 Sales
        Statement and determine the 2002 Sales but always in accordance with the
        principles set out in paragraph 1 of this Schedule insofar as not
        otherwise agreed in accordance with the provisions of this Schedule 21.
        The Independent Accountants shall be entitled to call for and inspect
        such documents as they shall reasonably consider necessary. The
        determination prepared by the Independent Accountants shall be delivered
        to Thales and Nice within 30 days of such submission to the Independent
        Accountants and shall (save in respect of manifest error) be final and
        binding on Thales and Nice for the purposes of this Agreement and the
        Independent Accountants shall act as experts and not as arbitrators. In
        acting under this clause 2.5 the Independent Accountants shall be
        entitled to the privileges and immunities of arbitrators. Thales and
        Nice shall act in good faith towards each other regarding such
        application and in particular shall endeavour with reasonable expedition
        to settle the terms of reference of the Independent Accountants.


2.6     Thales shall pay the charges of Thales' Accountants and Nice shall pay
        the charges of Nice's Accountants in respect of work carried out
        pursuant to the provisions of this Schedule and the charges of the
        Independent Accountants (if appointed) shall be apportioned between
        Thales and Nice in such proportions as the Independent Accountants may
        determine in the light of the merits of the objections taken by (or on
        behalf of) Thales to the 2002 Sales Statement in the form despatched
        pursuant to paragraph 2.2.

                                      370
<PAGE>


2.7     Thales and Nice shall respectively procure, so far as they are able,
        that the Companies, the Purchasers, Nice's Accountants and Thales'
        Accountants respectively shall give each other and to the Independent
        Accountants access to all of their working papers or other information
        used as a basis for preparing the 2002 Sales Statement and access to
        personnel as may reasonably be required for the purposes of considering
        and agreeing the 2002 Sales Statement.


2.8     Upon the 2002 Sales Statement having become final and binding pursuant
        to this Schedule (save in respect of fraud or manifest error), Nice
        shall procure that the Nice's Accountant's Certificate is finalised and
        signed and no right of appeal shall be competent with regard thereto,
        and neither Thales nor Nice nor the Independent Accountants shall be
        entitled to appeal or state a case either on a point of law or fact with
        regard thereto, to any court.


                                      371
<PAGE>

3       Sales Earn Out Amount

        The Sales Earn Out Amount shall be calculated by reference to the table
        set out below such that for every Euro by which the 2002 Sales exceeds
        Euro 84,000,000, up to and including the sum of Euro 88,000,000, Thales
        shall be entitled to a Dollar by way of the Sales Earn Out and if the
        2002 Sales are Euro 88,000,001 or above then Thales shall be entitled to
        a further $1,000,000 save that the Sales Earn Out Amount shall in no
        event exceed $5,000,000:




        Earn Out       Euro Sales Range                       Sales Earn Out

                       From                    To             Amount

                       84,000,000 or below                                 $0

            1          84,000,001              85,000,000          $1,000,000

            2          85,000,001,             86,000,000          $2,000,000

            3          86,000,001              87,000,000          $3,000,000

            4          87,000,001              88,000,000          $4,000,000

            5          88,000,001 and above                        $5,000,000




                                      372
<PAGE>

                                     PART B

                         NICE'S ACCOUNTANT'S CERTIFICATE


                (to be prepared on the notepaper of the Auditors)

To:    Thales

       Nice

Date

Reference

Gentleman

The Company

We refer to the Sale and Purchase Agreement ("the Agreement") made between
Thales and Nice on _________________________ 2002 for the sale of the Business
and the Assets as therein defined. Words and expressions defined for the purpose
of the Agreement have the same meanings in this letter.

In accordance with Clause 7.3 and Schedule 21 of the Agreement we attach,
initialled for identification, draft 2002 Sales Statement. The statement shows
2002 Sales of Euro [ ] and therefore in accordance with the Agreement and by
reference to the table set out in Schedule 21 the amount payable by [ ] to [ ]
is Dollars [ ].

In our opinion the 2002 Sales Statement has been prepared in all material
respects in accordance with Schedule 21 of the Agreement.

Yours faithfully



Nice's Accountants

                                      373
<PAGE>

                                   SCHEDULE 22

                                SURPLUS EMPLOYEES




                                      374

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>5
<FILENAME>tex4_4-29996.txt
<DESCRIPTION>EX-4.4
<TEXT>
<PAGE>

================================================================================








                          REGISTRATION RIGHTS AGREEMENT


                                 BY AND BETWEEN





                              NICE SYSTEMS LIMITED


                                       AND


                                    THALES SA



                          DATED AS OF NOVEMBER 2, 2002










================================================================================

<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this "Agreement"), dated as of November 2,
2002, is entered into by and between Nice Systems Limited of 8 Hapnina Street,
Ra'anana 43107, Israel, a corporation organized under the laws of Israel (the
"Company") and Thales SA of 173 Boulevard Haussmann, Paris, France (75008), a
company organized under the laws of France (the "Initial Holder").

                                    RECITALS

WHEREAS, the Initial Holder and the Company have entered into a Sale and
Purchase Agreement, dated 30 July, 2002 (the "Sale and Purchase Agreement")
pursuant to which the Company has agreed to purchase from the Initial Holder
certain securities and other assets of the Initial Holder described therein for
the consideration described therein;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the Company
will issue or cause to be issued 2,187,500 American Depository Shares of the
Company ("ADSs"), each representing one Ordinary Share, par value 1.00 New
Israeli Shekel per share, of the Company (each, an "Ordinary Share") to the
Initial Holder;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the ADSs and
Ordinary Shares issued to the Initial Holder are subject to certain restrictions
on transfer pursuant to (A) Schedule 11 to the Sale and Purchase Agreement,
including prohibitions on any transfers within the first year following their
issuance, limitations on transfers in subsequent periods, and limitations on the
manner of sale (including pricing) of ADSs and any American Depositary Receipts
representing ADSs ("ADRs"), and (B) US and Israeli securities laws;

WHEREAS, pursuant to the terms of the Sale and Purchase Agreement, the Company
has agreed to eliminate certain of the restrictions under US and Israeli
securities laws by entering into this Agreement to provide the Initial Holder
with registration rights with respect to the ADSs and Ordinary Shares issued to
the Initial Holder pursuant to the terms of the Sale and Purchase Agreement; and

WHEREAS, the Company and the Initial Holder desire to enter into this
Registration Rights Agreement to provide for such registration rights on the
terms set forth herein.

NOW THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:

1.      CERTAIN DEFINITIONS.

        As used in this Agreement, the following terms shall have the meanings
ascribed to them below:

<PAGE>

        1.1.    "AFFILIATE" shall have the meaning given to it in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.

        1.2.    "COMMISSION": the Securities and Exchange Commission.

        1.3.    "EXCHANGE ACT": the Securities Exchange Act of 1934, as amended.

        1.4.    "HOLDER" or "HOLDERS": the Initial Holder for so long as it
shall hold Registrable Securities and any transferee of Registrable Securities
to whom the Initial Holder shall assign or transfer any rights hereunder,
PROVIDED that such transferee has agreed in writing to be bound by this
Agreement and the transfer restrictions set forth in Schedule 11 to the Sale and
Purchase Agreement in respect of such Registrable Securities.

        1.5.    "PERSON": any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or other entity, whether
acting in an individual, fiduciary or other capacity.

        1.6.    "REGISTRABLE SECURITIES": the ADSs issued to the Holder pursuant
to the terms of the Sale and Purchase Agreement and the Ordinary Shares
underlying such ADSs. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, or (ii) such securities are
eligible to be sold or distributed pursuant to Rule 144 (or any successor
provision) under the Securities Act within any consecutive three month period
(including, without limitation, pursuant to Rule 144(k)) without volume
limitations.

        1.7.    "SECURITIES ACT": the Securities Act of 1933, as amended.

2.      REGISTRATION RIGHTS.

        2.1.    SHELF REGISTRATION STATEMENT

                (a)     OBLIGATION TO FILE AND MAINTAIN. Subject to the prior
        receipt by the Company of the audited financial statements, auditors'
        report and current accountants' consent required by Section 10.6 of the
        Sale and Purchase Agreement, the Company agrees to prepare and, within
        two hundred seventy (270) days following the Completion Date (as
        defined in the Sale and Purchase Agreement) and in any event not later
        than June 30, 2003 (or, if later, the date that the Company's report on
        Form 20-F is required to be filed with the Commission), to file with
        the Commission, one (1) registration statement for an offering to be
        made on a continuous basis pursuant to Rule 415 under the Securities
        Act, as such Rule may be amended from time to time, or any similar rule
        or regulation hereafter adopted by the Commission, covering all of the
        Registrable Securities held by the Holders (such registration, the
        "SHELF REGISTRATION STATEMENT"). The Shelf Registration Statement shall
        be on Form F-3 under the Securities Act or another appropriate form
        selected by the Company (and reasonably acceptable to the participating
        Holders) permitting registration of such Registrable Securities for
        resale by the

                                       -2-
<PAGE>

        participating Holders in the manner or manners reasonably designated by
        them (not including underwritten offerings). The Company shall use its
        reasonable commercial best efforts to cause the Shelf Registration
        Statement to be declared effective by the Commission pursuant to the
        Securities Act no later than the one year anniversary of the Completion
        Date, and to keep the Shelf Registration Statement continuously
        effective under the Securities Act until the later of (i) the third
        anniversary of the Completion Date or (ii) the date on which all of such
        securities are eligible to be sold or distributed pursuant to Rule 144
        (or any successor provision) under the Securities Act within any
        consecutive three month period (including, without limitation, pursuant
        to Rule 144(k)) without volume limitations (such period, the
        "EFFECTIVENESS PERIOD"); PROVIDED, that the Effectiveness Period shall
        be extended by that number of days which is equal to the aggregate
        number of days that the selling Holders are required to suspend use of
        the Shelf Registration Statement pursuant to actions or events described
        in Section 3 of this Agreement.

                (b)     SELLING SECURITYHOLDER INFORMATION. The Company may
        require each participating Holder to furnish to the Company such
        information regarding the Holder and the distribution of the Registrable
        Securities as the Company may from time to time reasonably require for
        inclusion in the Shelf Registration Statement, and the Company may
        exclude from such registration the Registrable Securities of any Holder
        that fails to furnish such information within twenty (20) business days
        after delivery of such request by the Company. Each Holder agrees to
        furnish to the Company all information required to be disclosed in order
        to make the information previously furnished to the Company by such
        Holder not misleading.

                (c)     The Company represents and warrants that it currently
        meets the requirements for use of Form F-3 for registration of the
        public resale of the Registrable Securities and has no knowledge of any
        facts which would cause the Company to fail to meet such requirements.
        In the event that after the Completion Date Form F-3 is not available
        for the registration of the public resale of Registrable Securities
        pursuant to the terms herein, the Company shall use reasonable efforts
        to (i) register the public resale of the Registrable Securities on
        another appropriate short form, reasonably acceptable to the Holders,
        and (ii) undertake to register the Registrable Securities on Form F-3 as
        soon as such form is available; PROVIDED, that the Company shall
        maintain the effectiveness of the Shelf Registration Statement then in
        effect until such time as a Shelf Registration Statement on Form F-3
        covering the Registrable Securities has been declared effective;
        PROVIDED, further that the combined effectiveness period of all Shelf
        Registration Statements covering the Registrable Securities shall not be
        longer than the Effectiveness Period.

        2.2.    REGISTRATION PROCEDURES.

        In connection with the preparation and filing of the Shelf Registration
Statement, the Company shall, as expeditiously as practicable:

                                      -3-
<PAGE>

        (a)     prepare and file with the Commission a registration statement on
Form F-3 under the Securities Act or another appropriate form selected by the
Company (and reasonably acceptable to the participating Holders) for the
disposition of the Registrable Securities of the Holders, which shall comply as
to form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and the Company shall use its best efforts to cause such registration
statement to become and remain effective (PROVIDED, HOWEVER, that before filing
a registration statement or prospectus or any amendments or supplements thereto,
or comparable statements under securities or blue sky laws of any jurisdiction,
the Company will furnish to one counsel for the Holders participating in the
planned offering (selected by the Holders of a majority of the Registrable
Securities included in such registration) copies of all such documents proposed
to be filed (including all exhibits thereto), which documents will be subject to
the reasonable review and reasonable comment of such counsel;

        (b)     prepare and file with the Commission such pre- and
post-effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective until the expiration of the Effectiveness
Period and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;

        (c)     furnish, without charge, to each seller of such Registrable
Securities such number of copies of such registration statement, each pre- and
post-effective amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement (including
each preliminary prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such seller may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller (the Company hereby consenting to the use in
accordance with all applicable laws and the provisions of this Agreement of each
such registration statement (or amendment or post-effective amendment thereto)
and each such prospectus (or preliminary prospectus or supplement thereto) by
each such seller of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by such registration statement or
prospectus);

        (d)     use its reasonable commercial best efforts to register or
qualify the Registrable Securities covered by such registration statement under
such other securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities shall reasonably request, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such sellers
to consummate the disposition of the Registrable Securities in such
jurisdictions, except that in no event shall the Company be required to qualify
to do business as a foreign corporation in any jurisdiction where it would not,
but for the requirements of this paragraph (e), be required to be so qualified,
to subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;

        (e)     promptly notify each Holder selling Registrable Securities
covered by such registration statement: (i) when the registration statement, any
pre-effective amendment, the prospectus or any prospectus supplement related
thereto or post-effective amendment to the

                                      -4-
<PAGE>

registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective
(with such notification by fax or email on the same day as such filing or
effectiveness); (ii) of any request by the Commission or state securities
authority for amendments or supplements to the registration statement or the
prospectus related thereto or for additional information; (iii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any Registrable Securities
for sale under the securities or blue sky laws of any jurisdiction or the
initiation of any proceeding for such purpose; and (v) of the existence of any
fact of which the Company becomes aware which results in the registration
statement, the prospectus related thereto or any document incorporated therein
by reference containing an untrue statement of a material fact or omitting to
state a material fact required to be stated therein or necessary to make any
statement therein not misleading; and, if the notification relates to an event
described in clause (v), the Company shall (A) promptly, and in any event within
ten (10) business days, prepare and file with the Commission a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading and (B) promptly furnish
to each such seller a reasonable number of copies of such supplemented or
amended prospectus. In the event the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each seller of any Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus;

        (f)     comply with all applicable rules and regulations of the
Commission;

        (g)     (i) cause all such Registrable Securities covered by such
registration statement to be listed on the principal US securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) if no similar securities are then so listed, use its best
efforts to cause all such Registrable Securities to be listed on a national
securities exchange or, failing that, secure designation of all such Registrable
Securities as a National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") "national market system security" within the meaning
of Rule 11Aa2-1 of the Commission or, failing that, secure NASDAQ authorization
for such securities and, without limiting the generality of the foregoing, take
all reasonable commercial actions that may be required by the Company as the
issuer of such Registrable Securities in order to facilitate the registration of
at least two market makers as such with respect to such securities with the
National Association of Securities Dealers, Inc. (the "NASD");

        (h)     provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;

                                      -5-
<PAGE>

        (i)     deliver promptly to each Holder participating in the offering
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement, other than those portions of
any such correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon receipt of such
confidentiality agreements as the Company may reasonably request, make
reasonably available for inspection by any seller of such Registrable Securities
covered by such registration statement, and by any attorney, accountant or other
agent retained by any such seller, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant or agent in
connection with such registration statement;

        (j)     use its reasonable commercial best efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement;

        (k)     provide a CUSIP number for all Registrable Securities, not later
than the effective date of the registration statement;

        (l)     furnish to each Holder participating in the offering, without
charge, at least one signed copy of the registration statement and any
post-effective amendments thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);

        (m)     cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates not bearing any
restrictive legends representing the Registrable Securities to be sold, and
cause such Registrable Securities to be issued in such denominations and
registered in such names in accordance with the instructions of the selling
holders of Registrable Securities at least three business days prior to any sale
of Registrable Securities; and

        (n)     take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.

        The Company may require as a condition precedent to the Company's
obligations under this Section 2.2 that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request, provided that such information shall be
used only in connection with such registration.

        Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (v) of paragraph (e) of this Section 2.2, such Holder will discontinue
such Holder's disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by paragraph
(e) of this Section 2.2 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's

                                      -6-
<PAGE>

possession of the prospectus covering such Registrable Securities that was in
effect at the time of receipt of such notice. In the event the Company shall
give any such notice, the Effectiveness Period shall be extended by the number
of days during such period from and including the date of the giving of such
notice to and including the date when each seller of any Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by paragraph (e) of this Section
2.2.

        If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.

        2.3.    REGISTRATION EXPENSES.

        (a)     "EXPENSES" shall mean any and all fees and expenses incident to
the Company's performance of or compliance with this Agreement, including,
without limitation: (i) Commission, stock exchange or NASD registration and
filing fees and all listing fees and fees with respect to the inclusion of
securities in NASDAQ, (ii) fees and expenses incurred in complying with United
States or Israeli securities or state blue sky laws, (iii) printing expenses,
(iv) messenger and delivery expenses, (v) fees and disbursements of counsel for
the Company, (vi) fees and disbursements of all independent public accountants
(including the expenses of any audit and/or "cold comfort" letter) and fees and
expenses of other persons, including special experts, retained by the Company,
(vii) fees associated with the issuance of the Company's American Depository
Shares, evidenced by ADRs issued pursuant to the Deposit Agreement, dated as of
January 24, 1996, by and among the Bank of New York, as depositary, the Company
and holders of American Depositary Receipts (the "ADR FACILITY"), and (viii)
fees and expenses, if any, relating to the maintenance, administration or
amendment of the depository facility for the ADSs in connection with the sale of
any Registration Securities (collectively, "EXPENSES").

        (b)     The Company shall pay all Expenses with respect to the
registration contemplated by this Agreement whether or not such registration
becomes effective or remains effective for the period contemplated by Section
2.1.

        (c)     Notwithstanding the foregoing, (x) the provisions of this
Section 2.3 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all transfer taxes,
if any, attributable to the Registrable Securities included in the offering by
such Holder and (z) the Company shall, in the case of all registrations under
this Agreement, be responsible for all its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties).

                                      -7-
<PAGE>

        2.4.    NO REQUIRED SALE.

        Nothing in this Agreement shall be deemed to create an independent
obligation on the part of any Holder to sell any Registrable Securities pursuant
to any effective registration statement.

        2.5.    INDEMNIFICATION.

        (a)     In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Agreement, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, the seller of any Registrable Securities covered by such registration
statement, its directors, officers, fiduciaries, employees and stockholders or
general and limited partners (and the directors, officers, employees and
stockholders thereof), and each other Person, if any, who controls such seller
within the meaning of the Securities Act, against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof ("CLAIMS") and expenses (including
reasonable fees of counsel and any amounts paid in any settlement effected with
the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Claims or expenses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the Securities Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall
not be liable to any such indemnified party in any such case to the extent such
Claim or expense arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact made in such registration statement or amendment thereof or
supplement thereto or in any such prospectus or any preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such indemnified party specifically
for use therein; and PROVIDED, FURTHER, that in no event shall the Company
indemnify, or be deemed to indemnify, any such Person in connection with any
actions taken by such Person in his or her capacity as a director of the Company
to the extent that such indemnification is not permitted by applicable law. Such
indemnity and reimbursement of expenses shall remain in full force and effect
regardless of any investigation made by or on behalf of such indemnified party
and shall survive the transfer of such securities by such seller.

                                      -8-
<PAGE>

        (b)     Each Holder of Registrable Securities that are included in the
securities as to which any registration under this Agreement is being effected
shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 2.5)
to the extent permitted by law the Company, its officers and directors, each
Person controlling the Company within the meaning of the Securities Act and all
other prospective sellers and their directors, officers, general and limited
partners and respective controlling Persons with respect to any untrue statement
or alleged untrue statement of any material fact in, or omission or alleged
omission of any material fact from, such registration statement, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such Holder specifically for use therein and reimburse such indemnified party
for any legal or other expenses reasonably incurred in connection with
investigating or defending any such Claim as such expenses are incurred;
PROVIDED, HOWEVER, that the aggregate amount which any such Holder shall be
required to pay pursuant to this Section 2.5(b) and Sections 2.5(c) and (e)
shall in no case be greater than the amount of the net proceeds received by such
person upon the sale of the Registrable Securities pursuant to the registration
statement giving rise to such claim. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
Holder.

        (c)     Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.5 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.

        (d)     Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 2.5, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 2.5, except to the
extent the indemnifying party is materially prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Article 2. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, unless in the reasonable opinion of outside
counsel to the indemnified party a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, to assume the
defense thereof jointly with any other indemnifying party similarly notified, to
the extent that it chooses, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party that it so chooses, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that (i) if the indemnifying party fails to take reasonable steps
necessary to defend diligently the action or proceeding within 20 days after
receiving notice from such indemnified party that the

                                      -9-
<PAGE>

indemnified party believes it has failed to do so; or (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought
against the indemnifying party reasonably shall have concluded that there may be
one or more legal defenses available to such indemnified party which are not
available to the indemnifying party; or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense as set forth above (but with no
more than one firm of counsel for all indemnified parties in each jurisdiction,
except to the extent any indemnified party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any expenses therefor. No indemnifying
party shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.

        (e)     If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Sections 2.5(a), (b) or
(c), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.5(e) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 2.5(e). The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 2.5(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 2.5(e) to
contribute any amount in excess of the net proceeds received by such
indemnifying party from

                                      -10-
<PAGE>

the sale of Registrable Securities in the offering to which the losses, claims,
damages or liabilities of the indemnified parties relate, less the amount of any
indemnification payment made pursuant to Sections 2.5(b) and (c).

        (f)     The indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution which any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Securities by any such party.

        (g)     The indemnification and contribution required by this Section
2.5 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.

3.      "MARKET STAND-OFF" AGREEMENT/BLACK-OUT PERIODS.

        (a)     During the Effectiveness Period, each Holder that, at any time
within twenty (20) trading days prior to the effectiveness of the registration
statement referred to below, owns 5% or more of the Company's issued and
outstanding equity securities, if requested by the Company and the managing
underwriter, shall agree that, during the period of ninety (90) days (or such
lesser time period as is agreed to by all officers and directors of the Company
and all holders of 5% or more of the Company's issued and outstanding equity
securities) following the effective date of a registration statement of the
Company filed under the Securities Act in connection with an underwritten
offering, it shall not sell or otherwise transfer or dispose of (other than to
donees or partners who agree to be similarly bound) any ADSs or Ordinary Shares
of the Company held by it except any ADSs or Ordinary Shares of such Holder
included in such registration; PROVIDED, HOWEVER, that any Holder that holds
less than 5% of the Company's issued and outstanding equity securities for each
of the twenty (20) trading days prior to the effectiveness of such registration
statement may, commencing on the thirty-first (31st) day after the effective
date of the registration statement, sell ADSs or Ordinary Shares representing up
to the greater of (x) 1% of the Company's then issued and outstanding equity
securities or (y) the average weekly trading volume of the Company's equity
securities during the four week period ending on the effective date of the
registration statement; and PROVIDED, FURTHER, that:

                (i)     the foregoing agreement by the Holder shall be in
        writing in a form reasonably satisfactory to the Holder;

                (ii)    such agreement shall be applicable only to a
        registration statement initiated by the Company which covers ADSs or
        Ordinary Shares to be sold on its behalf to the public in a firmly
        committed underwritten offering; and

                (iii)   all officers and directors of the Company and all
        holders of 5% or more of the Company's issued and outstanding equity
        securities enter into similar agreements.

        (b)     Notwithstanding anything herein to the contrary, the Company
shall be entitled to postpone or suspend (but not for a period exceeding 60 days
or until the Company notifies the Holders of the termination of any black-out
period) the filing or effectiveness of a registration

                                      -11-
<PAGE>

statement otherwise required to be prepared and filed by it pursuant to Section
2.1 or require the Holders not to sell under the Shelf Registration Statement as
provided for under Section 2.1 if the Company determines, in its good faith
judgment, or if the managing underwriter for any underwritten offering advises
the Company in writing, that such registration and offering, continued
effectiveness or sale would interfere with any material financing, acquisition,
disposition, corporate reorganization or other material transaction involving
the Company or any of its subsidiaries or public disclosure thereof would be
required prior to the time such disclosure might otherwise be required, or when
the Company is in possession of material information that it deems advisable not
to disclose in a registration statement (a "VALID BUSINESS REASON BLACK-OUT
PERIOD"), PROVIDED, HOWEVER, that (A) the Holders shall not be prohibited from
selling ADSs or Ordinary Shares pursuant to the Shelf Registration Statement for
120 days after the Shelf Registration Statement is declared effective by the
Commission, (B) the aggregate number of days included in all Valid Business
Reason Blackout Periods during any consecutive six (6) months shall not exceed
sixty (60) days and (C) there shall not be more than four (4) Valid Business
Reason Black-Out Periods during any consecutive twelve (12) month period. The
Company shall not be entitled to initiate a Valid Business Reason Black-Out
Period unless it shall (i) to the extent permitted or required by agreements
with other security holders of the Company, concurrently prohibit sales by such
other security holders under registration statements covering securities held by
such other security holders during such Valid Business Reason Blackout Period
and (ii) concurrently prohibit purchases and sales in the open market by
directors and executive officers of the Company during such Valid Business
Reason Blackout Period.

        (c)     Each Holder further acknowledges and agrees that such Holder may
have access to confidential information that constitutes material non-public
information regarding the Company for purposes of the securities laws of the
United States, and that such laws prohibit any person who has material
non-public information about a company from purchasing or selling securities of
such company, or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.

4.      GENERAL.

        4.1.    ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.

        The Company agrees that it shall not effect or permit to occur any
combination or subdivision of shares or any change in the number of Ordinary
Shares represented by each ADS unless and until the Company has filed a
registration statement with the Commission (or duly amended an existing
effective registration statement), such that, after giving effect to such
combination, subdivision or change, there shall be a sufficient number of
registered ADSs to represent all Ordinary Shares underlying Registrable
Securities held by all of the Holders pursuant to this Agreement.

        4.2.    MERGERS, ETC.

        The Company shall not, directly or indirectly, enter into any merger,
consolidation or reorganization in which the Company shall not be the surviving
corporation unless the proposed

                                      -12-
<PAGE>

surviving corporation shall, prior to such merger, consolidation or
reorganization, agree in writing to assume the obligations of the Company under
this Agreement, and thereafter references hereunder to "Registrable Securities"
shall be deemed to be references to the securities that the Holders of the
Registrable Securities receive in exchange for Registrable Securities under any
such merger, consolidation or reorganization; PROVIDED, HOWEVER, that the
provisions of this Agreement shall not apply in the event of any merger,
consolidation or reorganization in which the Company is not the surviving
corporation if all Holders of Registrable Securities are entitled to receive in
exchange for their Registrable Securities consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation that may be immediately sold
to the public without registration under the Securities Act or (iii) securities
of the acquiring corporation that the acquiring corporation has agreed to
register within 90 days of the completion of the transaction for resale to the
public pursuant to the Securities Act.

        4.3.    RULE 144.

        For so long as any Holder holds Registrable Securities and the Company
is subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), the Company covenants that it will timely file
the reports required to be filed by it under the Securities Act or the Exchange
Act (including, but not limited to, the reports under Sections 13 and 15(d) of
the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the
Securities Act), and will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the Commission.

        4.4.    NOMINEES FOR BENEFICIAL OWNERS.

        If Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its option, be treated as the
Holder of such Registrable Securities for purposes of any request or other
action by any Holder or Holders of Registrable Securities pursuant to this
Agreement (or any determination of any number or percentage of Ordinary Shares
constituting Registrable Securities held by any Holder or Holders of Registrable
Securities contemplated by this Agreement); provided that the Company shall have
received assurances reasonably satisfactory to it of such beneficial ownership.

        4.5.    AMENDMENTS AND WAIVERS.

        This Agreement may be amended, modified, supplemented or waived only
upon the written agreement of the party against whom enforcement of such
amendment, modification, supplement or waiver is sought.

        4.6.    NOTICES.

        Except as otherwise provided in this Agreement, notices and other
communications under this Agreement shall be in writing and delivered
personally, by telecopy (with confirmation sent

                                      -13-
<PAGE>

within three business days by overnight courier) or by overnight courier,
addressed to such party at the address set forth below:

                (i)     if to the Company, to:

                        Nice Systems Limited
                        8 Hapnina Street
                        Ra'anana 43107
                        Israel

                        with a copy to:

                        Brown Raysman Millstein Felder & Steiner LLP
                        900 Third Avenue
                        New York, NY 10022
                        Telecopy: (212) 895-2900
                        Attn: David M. Warburg, Esq.

                (ii)    if to the Initial Holder, to:

                        Thales SA
                        173 Boulevard Haussmann
                        Paris
                        France (75008)

                        with a copy to:

                        Fried, Frank, Harris, Shriver & Jacobson
                        Suite 800
                        1001 Pennsylvania Ave., NW
                        Washington, DC  20004
                        Telecopy: (202) 639-7004
                        Attn: Andrew P. Varney, Esq.

        Each Holder, by written notice given to the Company in accordance with
this Section 4.6 may change the address to which such notice or other
communications are to be sent to such Holder. All such notices and
communications shall be deemed to have been received on the date of delivery
thereof, if delivered by hand, on the fifth day after the mailing thereof, if
mailed, on the next day after the sending thereof, if by overnight courier, when
answered back if telexed and when receipt is acknowledged, if telecopied.

        4.7.    MISCELLANEOUS.

                (a)     This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors and assigns of the parties hereto, whether so expressed or not. No
Person other than a Holder shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein. This Agreement and the

                                      -14-
<PAGE>

rights of the parties hereunder may be assigned by any of the parties hereto to
any transferee of Registrable Securities, provided that such transferee agrees
in writing to be bound by this Agreement and the transfer restrictions set forth
in Schedule 11 to the Sale and Purchase Agreement in respect of such Registrable
Securities.

                (b)     This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.

                (c)     This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York without giving
effect to the conflicts of law principles thereof.

                (d)     The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
Section references are to this Agreement unless otherwise expressly provided.

                (e)     This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

                (f)     Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.

                (g)     It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person will be irreparably damaged
and will not have an adequate remedy at law. Any such person shall, therefore,
be entitled to injunctive relief, including specific performance, to enforce
such obligations, without the posting of any bond and if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law.

                (h)     Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

        4.8.    NO INCONSISTENT AGREEMENTS; SECURITIES REMAIN SUBJECT TO OTHER
                CONTRACTUAL RESTRICTIONS.

        Neither the Company nor any Holder has, prior to the date of this
Agreement entered into, or will, on or after the date of this Agreement enter
into, any agreement with respect to its securities which is inconsistent with
the rights granted in this Agreement or otherwise conflicts

                                      -15-
<PAGE>

with the provisions hereof. Notwithstanding this Agreement and the effectiveness
of any Shelf Registration Statement, the Holder acknowledges that pursuant to
the terms of the Sale and Purchase Agreement, the ADSs and Ordinary Shares
issued to the Holder are subject to certain restrictions on transfer pursuant to
Schedule 11 to the Sale and Purchase Agreement, including prohibitions on any
transfers within the first year following their issuance, limitations on
transfers in subsequent periods, and limitations on the manner of sale
(including pricing) of ADSs and any American Depositary Receipts representing
ADSs, and that such restrictions shall apply, in accordance with the terms of
the Sale and Purchase Agreement to sales or other transfers proposed to be
effected pursuant to any Shelf Registration Statement.



        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.

                                            NICE SYSTEMS LIMITED


                                            By: /s/ Lauri HAnover
                                            Name: Lauri Hanover
                                            Title: Chief Financial Officer


                                            THALES SA


                                            By: /s/ John Hughes
                                            Name: John Hughes
                                            Title: Executive Vice President


                                      -16-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>6
<FILENAME>tex4_5-29996.txt
<DESCRIPTION>EX-4.5
<TEXT>
<PAGE>

                                                                     EXHIBIT 4.5


                       MANUFACTURING OUTSOURCING AGREEMENT

This Manufacturing Outsourcing Agreement (The "AGREEMENT") is entered into on
January 21st, 2002, by and between Nice Systems Ltd., an Israeli registered
corporation no. 52-0036872 having its place of business at 8 Hapnina Street,
P.O.B 690, Ra'anana 43107, Israel, ("NICE") and Flextronics Israel Ltd., an
Israeli registered corporation no. 51-2933045, having its place of business at 1
Hatasiya Str., Ramat Gabriel Industrial Zone, Migdal Haemek 23108, P.O.Box 867,
Israel (the "CONTRACTOR"). NICE and Contractor are collectively referred to as
the Parties.

RECITALS

WHEREAS NICE issued a request for information ("RFI") version A.2 dated June
17th, 2001 to a number of manufacturers seeking to provide NICE with certain
local Manufacturing Outsourcing Services (as defined hereinafter) for the
production, testing and delivery in world class quality and capability of NICE'
Products, on a turnkey basis, to acquire from NICE inventory related to the
operations to be outsourced, and to contract with certain of the contractors
performing portions of the remainder of work or to accept assignment of such
contracts, all as detailed herein;

WHEREAS the RFI was followed by a request for proposal including a detailed
Statement of Work including Exhibits dated 13.8.01 (the "RFP");

WHEREAS the Contractor submitted a proposal in response to the RFI and RFP
(together the "PROPOSAL" or the "CONTRACTOR'S PROPOSAL");

WHEREAS the bidding process resulted in the selection of Contractor, which
represented that it possessed the necessary skills, staffing, experience,
resources, and capabilities to provide those certain Manufacturing Outsourcing
Services detailed herein in world class quality, capability and manner as set
forth herein;

WHEREAS the Parties have completed the pre-contract due diligence, and now wish
to contract for the provision of the Manufacturing Outsourcing Services;

NOW THEREFORE, FOR AND IN CONSIDERATION OF THE AGREEMENTS OF THE PARTIES SET
FORTH BELOW, NICE AND CONTRACTOR AGREE AS FOLLOWS:


A.   DEFINITIONS. The following terms shall have the meanings set forth below:

     (i)  "RFI" - shall have the meaning ascribed in the preamble above.

     (ii) "RFP" - shall have the meaning ascribed in the preamble above.

     (iii) "SOW" - Statement of Work document attached to the RFP and forming an
           integral part thereof including its Exhibits.

<PAGE>

     (iv) "CONTRACTOR'S PROPOSAL" or "PROPOSAL" - shall have the meaning
          ascribed in the preamble above. It is clarified that for the purpose
          of Contractor's Proposal in response to the RFI, Contractor hereby
          declares that such Proposal was valid and correct at the date
          submitted in all material aspects which are relevant to NICE' decision
          to choose Contractor as the Manufacturing Outsourcing Services
          supplier.

     (v)  "PRODUCTS" - Digital recording products as defined in APPENDIX A and
          further detailed in the PDM System, and as shall be amended from time
          to time by NICE and manufactured by Contractor in accordance herewith.

     (vi) "MANUFACTURING OUTSOURCING SERVICES" - Certain turnkey based
          purchasing, manufacturing, testing, configuration and delivery
          services for the Products all as detailed in the Agreement and its
          Appendices and Exhibits, including but not limited to: purchase of the
          Product's components which are not supplied by NICE, assembly and
          production of the Products subject to supervision, control and
          planning by NICE, execution of Measurements and Procedures, response
          times, providing infrastructure and resources, allocation of the
          required manpower, use of the Non Generic Equipment, execution of
          engineering and integration process, Engineering Changes, integration
          of NICE Software, implementation of Control and Planning, Engineering
          Changes and Change Order procedures, packaging requirements,
          dismantling and disassembly of Products procedure, spare part
          mechanism, quality control requirements, logistics management
          including inventory management, adjusting and meeting forecasts,
          components purchasing procedure, supplies and shipment schedules,
          issuing orders procedure, preparing export shipments, all of world
          class quality and capability and as provided herein, on a turnkey
          basis, and acquisition from NICE of certain inventory related to the
          operations to be outsourced, and to contract with certain of the
          contractors supplying components and/or performing portions of the
          remainder of work or to accept assignment of such contracts, all as
          detailed herein.

     (vii) "NICE SOFTWARE" - Dedicated software developed by NICE and/or for
          NICE, in which all Intellectual Property (as defined below) is owned
          by NICE.

     (viii) "PERSONNEL" - Contractors' employees, subcontractors,
          subcontractor's employees and any other person acting on behalf of
          Contractor.

     (ix) "AFFILIATE" - A corporation, partnership or other business entity
          which controls, is controlled by, or is under common control of a
          Party. For the purposes hereof, "CONTROL" shall mean the holding of
          more than 50% of the voting rights in the entity in question.

                                       2
<PAGE>

     (x)  "CUSTOMER/S" - NICE distributors, resellers, VAR's (value added
          resellers), OEM's and similar business partners and/or end-users,
          which purchase the Products.

     (xi) "NICE PROPRIETARY INFORMATION" - Any and all data and information
          disclosed by NICE to the Contractor during the term of this Agreement
          in any form, whether verbally, in writing or in machine readable form
          or in magnetic media, relating to the business, manufacturing,
          know-how, Products, NICE Software, any other products, items,
          components and affairs of NICE including its Affiliates, and including
          without limitation - documents, prototypes, samples and the NICE'
          plants and equipment, Products, certain proprietary and confidential
          information concerning NICE' past, present and future research,
          development and business activities and the results therefrom,
          including but not limited to digital recording solutions, applications
          and services technology. Proprietary Information may also include
          information disclosed to NICE by third parties. Proprietary
          Information shall not include data and information which: (i) was or
          will be, independently of this Agreement, lawfully in the possession
          of the Contractor without breach of obligation of secrecy of
          Contractor to NICE, and/or (ii) was or will be, independently of this
          Agreement, lawfully in the possession of the Contractor without breach
          of obligation of secrecy of a third party to NICE, or (iii) was in the
          public domain or was common knowledge at the time of receipt by the
          Contractor; or (iv) following its disclosure to the Contractor as the
          receiving Party, has, through no fault on the part of the Contractor,
          subsequently become part of the public domain or is common knowledge;
          or (v) is required to be disclosed by the Contractor to comply with
          applicable laws or governmental regulations, provided that the
          Contractor provides prior written notice of such disclosure to NICE
          and takes reasonable and lawful actions, at NICE' expense, to avoid
          and/or minimize the extent of such disclosure.

          "CONTRACTOR'S PROPRIETARY INFORMATION" - data and information
          disclosed by Contractor to NICE during the term of this Agreement in
          any form, whether verbally, in writing or in machine readable form or
          in magnetic media, relating to the business, manufacturing methods,
          know-how, systems, price lists, suppliers lists and terms of
          engagement with suppliers, of Contractor including its Affiliates, and
          including without limitation documents, and the Contractor's plants
          and equipment, all information disclosed under audits under this
          Agreement. Contractor's Proprietary Information may also include
          information disclosed to Contractor by third parties. Contractor's
          Proprietary Information shall not include data and information which:
          (i) was or will be, independently of this Agreement, lawfully in the
          possession of NICE

                                       3
<PAGE>

          without breach of obligation of secrecy to Contractor, and/or (ii) was
          or will be, independently of this Agreement, lawfully in the
          possession of NICE without breach of obligation of secrecy of a third
          party to Contractor, or (iii) was in the public domain or was common
          knowledge at the time of receipt by NICE; or (iv) following its
          disclosure to NICE as the receiving Party, has, through no fault on
          the part of NICE, subsequently become part of the public domain or is
          common knowledge; or (v) is required to be disclosed by NICE to comply
          with applicable laws or governmental regulations, provided that NICE
          provides prior written notice of such disclosure to Contractor and
          takes reasonable and lawful actions, at Contractor's expense, to avoid
          and/or minimize the extent of such disclosure.

     (xii) "INTELLECTUAL PROPERTY" - Trademarks, trade names, logos, domain
          names, designs, patents, copyrights, inventions, discoveries,
          technology, know-how, trade secrets, confidential and proprietary
          information and mask works, all registrations and applications for any
          and all renewals, reissuances and extensions of, and all goodwill in,
          the foregoing.

     (xiii) "PURCHASE ORDER/S" or "PO/'S"- A NICE purchase order ordering
          manufacture and supply of the Products, issued in accordance herewith.

     (xiv) "TOTAL LEAD TIME" - The Purchase Lead Time, Sub Assembly Lead Time
          and Production Lead Time together.

     (xv) "PURCHASE LEAD TIME" - The maximum agreed time for purchase of
          components by Contractor in order to enable production and completion
          of a Product until the Due Date, being the total of the time required
          for ordering and delivering all relevant components to Contractor from
          Contractor's suppliers, subject to the Liability. The initial Purchase
          Lead Time for each component (including sub-assembly purchased from
          suppliers) will be as detailed in APPENDIX C and shall be reviewed and
          updated as necessary by the parties each Quarter during the duration
          of this Agreement according to the procedure detailed in this
          Agreement. The new Purchase Lead Time shall need to be agreed to by
          both parties, and, once agreed, shall be the binding Purchase Lead
          Time for the relevant components. The parties will also agree on the
          Purchase Lead Time regarding each new component to be included in a
          Product.

     (xvi) "SUB ASSEMBLY LEAD TIME" - The maximum agreed time for completion of
          sub-assemblies in order to enable production and completion of a
          Product until the Due Date, beginning at the end of the Purchase Lead
          Time for all relevant components and ending on successful completion
          of testing of the relevant sub-assemblies. The initial Sub Assembly
          Lead Time for each sub-assembly will be as detailed in APPENDIX C and
          shall be reviewed and updated as necessary by the parties each Quarter
          during the duration of this Agreement according to the procedure
          detailed in this Agreement. The new Sub Assembly Lead Time shall need
          to be agreed to by both parties, and, once agreed, shall be the
          binding Sub Assembly Lead Time for the relevant Sub Assemblies. The
          parties will also agree on the Sub Assembly Lead Time regarding each
          new Sub Assembly to be included in a Product.

                                       4
<PAGE>

     (xvii) "PRODUCTION LEAD TIME" - The agreed time for completion of a Product
          until its Due Date, meaning from commencement of assembly (from
          sub-assemblies if applicable) until successful completion of testing,
          which shall always be fourteen (14) Days from receipt of the PO.

     (xviii) "ENGINEERING CHANGES" - Engineering change in the Product as
          detailed in Sections 3.10 and 3.11 to this Agreement.

     (xix) "ECR" - Engineering Change Request issued by NICE or by Contractor.

     (xx) "ECO" - Engineering Change Order issued by NICE at its discretion
          after an ECR, in accordance with Section 3.11 below.

     (xxi) "CHANGE ORDERS" - Change or changes or amendments in a specific order
          excluding rescheduling of an order/prices and excluding ECO's, as
          further detailed in Section 3.5.

     (xxii) "WARRANTY PERIOD" - Thirteen (13) months from the Shipment Date of
          the Product subject matter of the warranty, unless agreed otherwise by
          the parties in writing.

     (xxiii) "BACKUP SITE" - Contractor's backup site and/or the third party
          site, as detailed in APPENDIX G and in Section 2.9 below, designed to
          be operated in the event of force majeure or other event preventing
          the performance of the Manufacturing Outsourcing Services at
          Contractor's plant and to ensure an alternate facility with equivalent
          standards and availability.

     (xxiv) "DUE DATE" - The date of completion of the Product after completion
          of all quality and integration tests as detailed for each Product
          including in APPENDIX J and its classification as "finished goods"
          according to the date detailed in the relevant NICE Purchase Order,
          issued in accordance with this Agreement.

     (xxv) "SHIPMENT DATE" - the date of delivery of Products, properly packed
          (i.e. in accordance with this Agreement), including all documents
          required for the export of Products, to the NICE designated freight
          forwarder at Contractor's Location, which may be any time after the
          Due Date as determined by NICE, but not to exceed sixty (60) Days from
          the Due Date.

     (xxvi) "DAY" or "DAYS" - Calendar days unless specific reference is made to
          "Business Days".

                                       5
<PAGE>

     (xxvii) "BUSINESS DAYS" - Sunday to Thursday, excluding holidays. Holiday
          eves shall be regarded as half a business day.

     (xxviii) "QUARTER" - a calendar quarter.

     (xxix) "EFFECTIVE DATE" - January 21st, 2002

     (xxx) "LIABILITY " - components and sub-assemblies for which Contractor has
          an option of cancellation and/or rescheduling without liability, as
          detailed in APPENDIX C regarding each component and sub assembly. The
          cancellation window for VMI (Vendor Management Inventory) Components
          varies between 0 to 35 Days from ordering by Contractor.

     (xxxi) "NON GENERIC EQUIPMENT" - functional testing equipment and any
          equipment related thereto.

     (xxxii) "PDM SYSTEM" - NICE' engineering system (PDM) to which Contractor
          shall be granted access for the purpose of performance of this
          Agreement and whose contents shall be binding and constitute an
          integral part of this Agreement, subject to Section 17.1. The contents
          of the PDM System as at the date hereof which are not governed by
          Section 17.1 may only be changed further to an ECO issued in
          accordance herewith.


B.   INTERPRETATIONS

     As used in this Agreement:

     (i)  The terms and expressions set out in Section "A" shall have the
          meanings ascribed therein.

     (ii) The preamble and Appendices and Schedules form an integral part of
          this Agreement.

     (iii) The masculine includes the neuter and the feminine; and the singular
          includes and plural and vice versa.

     (iv) A reference to any statute, enactment, order, regulation or other
          similar instrument shall be construed as a reference to the statute,
          enactment, order, regulation or instrument as amended by any
          subsequent statute, enactment, order, regulation or instrument or as
          contained in any subsequent re-enactment thereof.

     (v)  Headings are included in this Agreement for ease of reference only and
          shall not affect the interpretation or construction of this Agreement.

                                       6
<PAGE>

     (vi) References to Sections, Schedules, Appendices and Exhibits are, unless
          otherwise provided, references to sections, schedules, appendices and
          exhibits to this Agreement.

     (vii) In the event certain provisions incorporated in the Agreement are
          contradictory VIS-A-VIS other provisions incorporated in the
          Appendices and Schedules, the Agreement shall prevail.

     (viii) In the event certain provisions incorporated in the Appendices and
          Schedules are contradictory VIS-A-VIS other provisions incorporated
          therein, the specific provisions shall take precedence over the
          general provisions.

C.   APPENDICES AND SCHEDULES

     (i)  Appendix A - Products;

     (ii) Appendix B - The Proposal;

     (iii) Appendix C - Prices, Purchase and Sub-Assembly Lead Time,
          cancellation windows, rescheduling period, minimum order, package
          quantity, labor costs, disassembly fees, Product prices, cancellation
          fees, ECR and ECO administrative costs [a new version to be completed
          within a month of signature of the Agreement and thereafter updated in
          accordance with this Agreement];

     (iv) Appendix D - Insurance Certificate;

     (v)  Appendix E - Non Disclosure Undertaking;

     (vi) Appendix F - NICE Inventory purchased by Contractor for the first
          Quarter (NICE Inventory purchased by Contractor for the second Quarter
          will be added as an addition to Appendix F at a later date);

     (vii) Appendix G - Back Up Site;

     (viii) Appendix H - Safety, Security & IT Requirements;

     (ix) Appendix I - Spare Parts / Upgrade;

     (x)  Appendix J - Quality Assurance Requirements;

     (xi) Appendix K - NICE Products release policy;

     (xiv) Appendix N - RMA Process.

                                       7
<PAGE>

1.   MANUFACTURING OUTSOURCING SERVICES

     1.1. SCOPE OF WORK. During the term of and subject to this Agreement,
          Contractor shall perform the Manufacturing Outsourcing Services
          including purchase, assemble, manufacture, configure, test and deliver
          to NICE' freight forwarder in Contractor's facility, under the terms
          set forth below, and NICE shall purchase from Contractor, and
          Contractor shall sell to NICE, such quantities of units of the
          Products according to NICE' Purchase Orders, from time-to-time as
          detailed below, at the quoted prices set forth in Appendix C. This
          Agreement or any provision thereof shall not be interpreted as
          granting Contractor any exclusive rights in respect of the
          Manufacturing Outsourcing Services or any similar services outsourced
          by NICE, and shall not prevent NICE, at its sole discretion, from
          contracting with any third party for such services, subject to the
          provisions of this Agreement. Notwithstanding anything to the contrary
          in the Agreement or elsewhere, including NICE' confidentiality
          obligations towards Contractor, but without derogating from NICE'
          obligations hereunder, this Agreement shall in no way be construed as
          preventing NICE from performing the Manufacturing Outsourcing Services
          or part thereof by itself and/or through others, whether during the
          term of this Agreement or thereafter.

     1.2. Contractor's obligations to execute the Manufacturing Outsourcing
          Services pursuant to this Agreement shall commence on the Effective
          Date, subject to the following provisions:

     1.2.1. OUTSOURCING TRANSITION - NICE intends to outsource part of its
          manufacturing activities to the Contractor, in 3 phases: (1) Training
          and Authorization, (2) Relocation and (3) Manufacturing Outsourcing
          Services, as described in this Agreement.

               1.2.2. INFRASTRUCTURE. For the execution of this Agreement and
                    the Manufacturing Outsourcing Services, Contractor will set
                    up and establish specific infrastructure including an
                    exclusive area in its production facility as detailed
                    herein. Contractor shall assemble its own workstations using
                    its generic equipment and the Non Generic Equipment to be
                    provided by NICE in good working order. The maintenance of
                    the Non Generic Equipment and keeping it in good working
                    order, except normal wear and tear, shall be Contractor's
                    responsibility, at Contractor's expense. NICE shall have the
                    right to object on reasonable grounds to any material change
                    of the manufacturing facility for any Product.

               1.2.3. RELOCATION- Contractor will complete the Relocation
                    process including preparation of production lines

                                       8
<PAGE>

                    that will be able to ensure the production capacity
                    according to NICE' forecasts as detailed herein. The
                    completion of the Relocation stage shall be on time in order
                    to enable compliance with the Forecast submitted to
                    Contractor prior to signature of this Agreement and shall be
                    subject to the Control of NICE, without relieving Contractor
                    from its responsibilities hereunder. Upon NICE' approval
                    that the Relocation stage has been completed to its
                    satisfaction, which approval shall not be unreasonably
                    withheld, the Contractor shall commence the Manufacturing
                    Outsourcing Services.

               1.2.4. RESOURCES, PERSONNEL, PROJECT MANAGER. Contractor will be
                    responsible for the required resources in order to comply
                    with its undertakings hereunder and to deliver the
                    Manufacturing Outsourcing Services as detailed hereunder.
                    Contractor will perform the Manufacturing Outsourcing
                    Services using only skilled, qualified and experienced
                    personnel to the extent required for the purpose of
                    performing its undertakings pursuant to this Agreement, to
                    be trained and authorized, according to NICE' requirements.
                    Contractor shall not replace at its initiative key Personnel
                    during the duration of this Agreement, to the extent such
                    replacement shall materially impair its ability to perform
                    in compliance herewith and any such replacement shall take
                    place only after consultation with NICE. It is agreed for
                    the purpose hereof, that frequent replacement of key
                    personnel shall be deemed as materially impairing
                    Contractor's ability to perform hereunder. NICE may reject
                    on reasonable grounds any such key personnel employed by
                    Contractor in the performance of its obligations hereunder,
                    and they shall be replaced by Contractor promptly following
                    NICE' first reasoned request. Such personnel shall abide by
                    all of NICE' security, data protection and safety
                    requirements and policies as indicated from time to time by
                    NICE in writing according to Section 17.1.

                    TheContractor will appoint a dedicated Project Manager who
                    will coordinate with NICE' representative and serve as a
                    single point of contact for NICE in all aspects pertaining
                    to this Agreement. The project manager will not be replaced
                    at Contractor's initiative during the duration of this
                    Agreement to the extent such replacement shall

                                       9
<PAGE>

                    materially impair Contractors ability to perform in
                    compliance herewith and any such replacement shall take
                    place only after consultation with NICE. It is agreed for
                    the purpose hereof, that frequent replacement of
                    Contractor's Project Manager shall be deemed as materially
                    impairing Contractor's ability to perform hereunder. The
                    project manager will meet with NICE' representative on a
                    regular basis.

               1.2.5. CONTROL AND PLANNING. Without derogating from the
                    aforesaid, Contractor will provide NICE with control
                    capability of the production. NICE shall be entitled to be
                    involved in the planning and establishment of the working
                    environment for all Product lines at the Contractor's
                    premises. Contractor will provide NICE with reports on a
                    daily/ weekly/ monthly basis, as follows: the reports will
                    present all relevant details regarding the production
                    orders, time between phases, disassembled Products,
                    schedules, logistics reports, etc. The reports provided will
                    present all said data in a clear manner and will include
                    graphic presentations. The reports will enable NICE to
                    verify that all systems are matched and to verify the
                    improvement that is achieved by Contractor. All said reports
                    shall need to be agreed in advance by both Parties.

               1.2.6. SUPERVISION AND MONITORING. NICE shall be entitled but not
                    obligated, to supervise and monitor the execution of this
                    Agreement from time to time as set forth herein. NICE shall
                    be entitled, upon prior coordination, to visit any place
                    where the Manufacturing Outsourcing Services are being
                    performed including Contractor's plant/s and to review
                    samples of components and Products. As a result of such
                    supervision, NICE may propose improvements and increase in
                    efficiency in the Manufacturing Outsourcing Services and the
                    Parties will discuss such proposals and their affect on this
                    Agreement. Without derogating from the generality of the
                    aforementioned, any supervision and monitoring rights
                    granted to NICE hereunder are merely intended to secure
                    performance of this Agreement according to its terms and
                    shall not relieve Contractor from its responsibilities
                    hereunder according to this Agreement or impose any
                    responsibility or liability upon NICE which is not
                    explicitly detailed in this Agreement.

                                       10
<PAGE>

               1.2.7. MEASUREMENTS AND PROCEDURES. Contractor will execute all
                    the production stages required for a Product according to
                    NICE' Production File for the particular Product, included
                    in the PDM System.

               1.2.8. QUALITY ASSURANCE REQUIREMENTS. The Manufacturing
                    Outsourcing Services performed by Contractor shall be
                    executed according to and comply with all quality control
                    requirements and specifications described in APPENDIX J.
                    Without derogating from Contractor's responsibility as
                    aforementioned, NICE reserves the right to execute quality
                    assurance inspection on Contractor's premises, all as
                    described in APPENDIX J and according to the terms hereof.

               1.2.9. BACK-UP SITE. Contractor will ensure the availability of
                    the Back-up Site according to the terms of this Agreement.
                    Attached as APPENDIX G to this Agreement is the undertaking
                    of Flextronics, Inc., North Carolina for a Back Up Site in
                    North Carolina, USA and a transition plan for its operation.

               1.2.10. STEERING COMMITTEE. The Parties will appoint a steering
                    committee which shall monitor the execution of this
                    Agreement, comprised of Contractor's project manager, NICE'
                    representative, and relevant personnel of the Parties.

     2.   COMPONENTS PURCHASING, NICE COMPONENTS AND INVENTORY.

          2.1. COMPONENTS PURCHASING. Upon transition to the third phase -
               Production, the Contractor will be responsible for all purchasing
               of components and getting equipped with all the materials
               necessary for the assembly of the Products (except the Non
               Generic Equipment). At NICE' request, and without derogating from
               any other provisions of this Agreement, Contractor shall promptly
               notify NICE, in writing, who are the suppliers of any specific
               components and under what agreements purchase is effected.

          2.2. CONTRACTOR PURCHASE AGREEMENTS. Without derogating from the
               aforementioned, NICE may, at its sole discretion, decide to be
               involved and to actively or inactively, participate in
               negotiations and purchasing agreements of Contractor for
               components designated for production hereunder. In such event,
               Contractor will comply with NICE' requirements and instructions
               and contract accordingly, without imposing any liability on NICE,
               provided such instructions

                                       11
<PAGE>

               are in accordance with common purchasing practice and in
               accordance with this Agreement. NICE may, at its election,
               instruct Contractor not to purchase a relevant component from a
               specific supplier, provided an alternative supplier exists.
               APPENDIX C shall be updated accordingly. At NICE' request,
               Contractor shall notify any relevant supplier that it is
               purchasing components for NICE Products and shall further furnish
               the supplier with information requested by such supplier. In any
               event, Contractor shall report to NICE on its purchasing
               negotiations and achievements and shall supply NICE, at NICE'
               request, with a copy of all relevant existing documentation.

          2.3. FLEXTRONICS, INC. GLOBAL PURCHASE AGREEMENTS. Nevertheless, in
               the event that the purchase agreement is signed by Flextronics,
               Inc. as a global purchase agreement for the Flextronics group,
               and not as a local agreement of Contractor or as an agreement
               applying to NICE required components only, then NICE will not
               participate in the negotiations and will not be entitled to
               receive copies of such agreement/s. The details relevant to the
               components purchased under an agreement as above will be included
               in APPENDIX C and Contractor hereby declares and undertakes that
               the details included in APPENDIX C (as amended from time to time
               according to the provisions of this Agreement) shall be the
               accurate details from the Flextronics, Inc. global purchase
               agreements and components and sub assembly prices in APPENDIX C
               shall be net purchase prices of Contractor without any overhead
               or uplift. NICE shall be entitled, at its sole discretion, to
               object in advance to Contractor using any Flextronics, Inc.
               global purchase agreement and in such event, Contractor shall
               purchase the components separately, the provisions of Section
               2.2. shall apply and APPENDIX C shall be updated accordingly.
               Contractor undertakes to comply with NICE' instructions and the
               manufacturer license terms regarding the use and duplication of
               Microsoft and other third party software supplied by NICE and not
               to use such software products for any purpose other than in the
               assembly of the Products. Contractor will copy from the master CD
               of those software products only the exact number of licenses
               designated by NICE in writing and for which a license has been
               issued by NICE.

          2.4. NICE DESIGNATED COMPONENTS. NICE may request Contractor to
               purchase specific components from specific suppliers, provided
               that the terms of such suppliers are in accordance with common
               purchasing practices and APPENDIX C shall be updated accordingly.

               When purchasing components for Contractor's other customers,
               Contractor may not represent itself to the suppliers as a NICE
               outsourcer for the purposes of such purchase.

          2.5. NICE SUPPLIED COMPONENTS. NICE may, at its election, supply to
               Contractor software licenses and software or the like for which
               NICE has an existing royalty agreement with a third party (except
               electrical and mechanical components unless agreed otherwise), in
               lieu of Contractor purchasing same ("NICE COMPONENTS"). All

                                       12
<PAGE>

               such components will be delivered to Contractor in a mutually
               agreed package type, and in an agreed upon time and in agreed
               upon quantities. The parties will agree on the inventory level
               required by Contractor for each NICE Component and NICE' sole
               responsibility shall be to renew the inventory upon request.
               Contractor shall be responsible for ordering additional NICE
               Components if required above the inventory level and for ensuring
               that appropriate physical controls of such components are in
               place and properly administered. Contractor will not charge NICE
               any charges or overhead for such NICE Components. In the event
               Contractor has difficulty in purchasing any components which NICE
               can obtain and NICE has granted its consent to supply such
               component to Contractor in lieu of Contractor purchasing same,
               Contractor will not charge NICE any charges or overhead for such
               Components.

          2.6. INVENTORY MANAGEMENT AND USE OF EXISTING INVENTORY. All
               purchasing of inventory, use of inventory, and management of
               inventory shall be performed by Contractor according to this
               Agreement, and APPENDIX C.

          2.7. EXISTING NICE INVENTORY. Furthermore, Contractor will purchase
               from NICE its existing inventory of components available for use
               in Products for up to six (6) months on a rolling basis, as
               detailed in APPENDIX F, all of which will be transferred to
               Contractor's facility on the purchase date, all as detailed
               hereunder: On the Effective Date Contractor will purchase the
               inventory included in part I of APPENDIX F. Regarding the
               remainder of the inventory included in part II of APPENDIX F the
               following will apply: at the beginning of the first production
               Quarter hereunder Contractor will purchase the components
               required under the Forecast issued by NICE for that Quarter
               regardless of the Total Lead Time for such components; at the
               beginning of the second production Quarter hereunder Contractor
               will purchase the components required under the Forecast issued
               by NICE for that Quarter regardless of the Total Lead Time for
               such components; Contractor will purchase any components
               remaining in APPENDIX F after two Quarters as aforementioned, on
               a current basis as required under the Forecast issued by NICE for
               the following Quarters but in compliance with the Total Lead Time
               for such components. Contractor will use said NICE' inventory for
               the production of the Products rather than purchase such
               components from third parties, until full use of all NICE
               inventory. Contractor shall pay NICE the purchase price of such
               components, as set forth in APPENDIX C hereto, and under payment
               terms as set forth in Section 8.4. When sold to NICE as part of
               aProduct, the component prices paid by NICE to Contractor
               hereunder will be calculated with a reduced overhead of 2%. NICE
               will and does hereby provide Contractor with all such warranties
               with respect to the components sold thereby as is required from
               Contractor under this Agreement with respect to the same
               components. Furthermore, without derogating from NICE'
               undertakings hereunder, Contractor will use its international
               supply chain in order to assist NICE in selling its dead
               inventory, which is not included in APPENDIX F, and the proceeds
               from such sales will be shared as follows: 10% Contractor, 90%
               NICE. Contractor will report to NICE regularly, on such sales.

                                       13
<PAGE>

          2.8. COMPONENT END OF LIFE. Contractor shall take all necessary
               measures in order to receive immediate updates from its suppliers
               regarding end of life of any component (i.e types of components
               which shall no longer be manufactured). Contractor shall notify
               NICE immediately upon becoming aware of the event of end of life
               of a component. In such event, NICE shall designate and approve
               the replacement components to be used instead and the Parties
               will mutually agree on the required changes in APPENDIX C.

          2.9. COMPONENTS FOR NICE INTERNAL REQUIREMENTS. Contractor will
               occasionally provide services in order to help NICE to obtain
               components for NICE' internal requirements. Contractor will allow
               NICE to purchase reasonable quantities from its available
               inventory at a price agreed in advance, and will help NICE to
               obtain components from manufacturers/suppliers at the lowest
               available price (in the case where the components in question are
               not in the Contractor's inventory).

          2.10. It is clarified that nothing in this Agreement shall prevent
               NICE from contracting directly with Contractor's suppliers and
               vendors in any agreement, or from purchasing identical
               components, whether during this Agreement or following its
               termination or expiration.

     3.   ORDERING AND OTHER MATTERS

          3.1. FORECASTS. NICE shall give Contractor a written forecast of the
               Products, by type, quantity and expected Due Date (the
               "FORECAST") as follows: A Forecast shall be a rolling forecast
               for the current Quarter and the two (2) consecutive Quarters,
               detailed by week. Upon the Effective Date, NICE shall deliver a
               Forecast for the period commencing on the expected completion of
               the Relocation Phase for the first Product, for the current
               Quarter and for the next coming two Quarters and so on thereafter
               during the term of this Agreement. The Forecast may be updated by
               NICE on a weekly basis, or more frequently (at NICE' discretion).

               A Forecast will not be deemed to constitute a binding purchase
               order with respect to Products (as opposed to components and
               sub-assemblies, as set forth in Sections 3.4, 16 and 17.5 of this
               Agreement). Contractor will manufacture the quantities of
               Products only according to specific orders and the Production
               Lead Time. The

                                       14
<PAGE>

               Parties' responsibilities and undertakings arising from NICE'
               Forecast shall be according to APPENDIX C as amended from time to
               time according to the provisions of this Agreement. Liability
               reports will be submitted by Contractor on the 1st of each
               calendar month and will need to be approved by NICE. It is
               clarified for the avoidance of doubt, that in any event, any and
               all purchase obligations of NICE with respect to Products (as
               opposed to components and sub-assemblies) are limited in any
               given time during the term of this Agreement, to the PO's only.

               Contractor (with NICE' participation) will implement, at its own
               expense, a full process of Demand Flow Technology, including: (I)
               Product Synchronization; (II) Sequence of Events; (III) Mix
               Model; (IV) Demand of Capacity & Take Time; (V) Operations
               grouping; (VI) Line Design & Balancing. This process will help to
               determine the Sub Assembly Lead Time and the Production Lead
               Time. It is clarified that any change in the Production Lead Time
               detailed in this Agreement shall require NICE' prior written
               approval; any change in the Sub Assembly Lead Time detailed in
               this Agreement as a result of which the maximum Sub Assembly Lead
               Time for the relevant sub-assembly exceeds 30 Days, shall require
               NICE' prior written approval.

          3.2. PURCHASE ORDERS AND ISSUING ORDERS. NICE shall, from
               time-to-time, issue to Contractor a Purchase Order, according to
               the Forecast, for Products, by type, quantity and Due Date, as
               and when it desires to order Products. PO's will be issued at
               least two (2) weeks prior to the designated Due Date. Each and
               every order will be entered in NICE' logistic system as a Sales
               Order. Every Product shall be manufactured according to the
               Production Lead Time. Commencement of assembly shall be based on
               Production Lead Times (as per Section A (xvii)) and calculated to
               meet NICE' delivery requirements. It is clarified that delivery
               and shipment of Products and NICE' obligation to pay for Products
               shall only be according to a PO.

               Purchase Orders for Products (and Forecasts for Products) may be
               delivered to Contractor by any reasonable means, including but
               not limited to e-mail, computerized systems, etc., postal
               delivery, courier delivery, facsimile transmission, as shall be
               notified by NICE in writing and in advance of any relevant PO.
               For the removal of doubt, a PO shall not be binding upon
               Contractor until Contractor has confirmed in writing receipt of
               the PO. Contractor shall, within two Business Days of its receipt
               of a Purchase Order, accept or reject such Purchase Order in
               writing; provided, however, that Contractor shall be obligated to
               accept all Purchase Orders issued in accordance with the terms
               hereof for Products with respect to which a price per the
               quantity ordered has been mutually agreed by the parties.
               Contractor undertakes that in the event of increase in Product
               requirements VIS-A-VIS the Forecast (i.e. issuance of PO's
               exceeding

                                       15
<PAGE>

               the relevant Forecast), Contractor's manufacturing capacity can
               be increased, at any time, by thirty percent (30%) beyond the
               then current Forecast. In addition, in as much as purchase of
               components and purchase of sub assemblies are concerned, NICE may
               order Products, which are not included in the Forecast, and
               Contractor will make its best reasonable commercial efforts to
               accommodate such order in accordance with NICE' request. It is
               clarified that in any event Contractor will accept all PO's
               exceeding the Forecast, subject to updating the Due Date based
               upon the Total Lead Time for obtaining the required components,
               which are not available in Contractor's inventory. The Due Date
               for such PO's will be determined according to the time of
               obtaining the components. For components/Products the prices for
               which are not previously agreed under APPENDIX C, the price will
               be agreed in writing prior to acceptance of the PO.

          3.3. FORECAST REVIEW. The parties shall hold weekly meetings, in
               person, at NICE' facility or by conference phone call, for the
               purpose of discussing NICE' existing and contemplated Forecasts
               and order requirements and updating the Forecast; provided,
               however, only written Forecasts and Purchase Orders, or written
               modifications thereto, shall bind NICE and Contractor pursuant to
               the terms of this Agreement or otherwise. The parties, as
               business requirements dictate, may mutually agree upon the use of
               blanket purchase orders for specific sub-assemblies or components
               (exceeding the requirements under Forecasts), subject to the
               terms of this Agreement and such sub-assemblies or components
               purchased shall be deemed Permitted Components.

          3.4. PERMITTED COMPONENTS. Contractor may make purchase commitments to
               suppliers and assemble components to sub-assemblies based upon
               the Forecasts received from NICE but subject always to the Total
               Lead Time, Liability and ABC policies of Contractor (which NICE
               will be entitled to review and comment on in advance of the
               relevant purchase). Contractor shall maintain inventory of
               Permitted Components (as defined below) for use during the
               Production Lead Time. NICE shall only be obligated to Contractor
               for components and sub-assemblies ordered and assembled by
               Contractor, in accordance with the Forecast and in compliance
               always with the Total Lead Time as detailed in APPENDIX C (as
               amended from time to time according to this Agreement) or
               otherwise for inventory of components purchased from NICE under
               Sections 2.7 or 3.4(A), or purchased in accordance with POs,
               ECO's or Change Orders ("PERMITTED Components"), as detailed
               hereunder. It is clarified that any Forecast updated following
               the purchase of Permitted Components will not affect their
               definition as Permitted Components, and NICE' obligations with
               respect thereto, subject to the Liability.

               3.4(A) PURCHASE OF INVENTORY BY NICE.

                                       16
<PAGE>

                    NICE will purchase from Contractor inventory of Permitted
                    Components not required (in whole or in part) according to
                    the Forecast for the Quarter immediately following the time
                    at which such inventory is reviewed as detailed below
                    (hereinafter: the "FIRST QUARTER") as detailed below. The
                    following terms shall have the definitions ascribed thereto:

                    (i)  DEAD INVENTORY - Permitted Components, the entire
                         quantity of which is not required for assembly of
                         Products in accordance with the Forecast.

                    (ii) SLOW MOVING INVENTORY - Permitted Components, which are
                         required for assembly of Products for the two
                         consecutive Quarters commencing immediately after the
                         First Quarter, in accordance with the Forecast.

                    (iii) EXCESS INVENTORY - Permitted Components, which are
                         required for assembly of Products only during the third
                         Quarter after the First Quarter or thereafter, in
                         accordance with the Forecast.

                    Three (3) days before the beginning of every Quarter,
                    Contractor will issue a report of Dead, Slow Moving and
                    Excess Inventory, and shall detail the price of each
                    Permitted Component included in the report as specified in
                    APPENDIX C, which report will need to be verified by NICE
                    within 2-3 days. Inthe event that in any Quarter, the Dead
                    Inventory, Excess Inventory and Slow Moving Inventory
                    together exceed 15% of the Monthly Consideration (as defined
                    below), NICE will purchase such inventory exceeding 15% from
                    Contractor one day before the beginning of the First
                    Quarter, by payment of the price detailed in APPENDIX C
                    including a surcharge of 4%. In calculating and determining
                    the inventory falling within the said 15% (which shall not
                    be purchased by NICE) the following priority shall apply:
                    first - all Slow Moving Inventory, second (if not all 15%
                    were covered) - all Excess Inventory, third (if not all 15%
                    were covered) - Dead Inventory. The "MONTHLY CONSIDERATION"
                    for the purpose hereof shall mean the total actual price due
                    to Contractor from NICE hereunder for all Products during
                    the preceding Quarter, divided by three (3).

                    The foregoing shall apply only as of Q3 2002 - July 1st 2002
                    (the first report of inventory as above shall be issued at
                    the end of June 2002), and thereafter on a regular basis.

                    In the event NICE has purchased any Permitted Component from
                    Contractor as detailed above, Contractor is obligated to
                    repurchase such Permitted Component for production of the
                    next Forecast which requires such Permitted Component in
                    accordance with the relevant procedure of Section 2.7 above
                    (Nice Existing Inventory), at the price sold to NICE by
                    Contractor excluding the surcharge of 4%.

               No other compensation or components protection will be provided
               by NICE except as explicitly detailed above or in Sections 16.7,
               16.8 and 17.5 of this Agreement. Upon

                                       17
<PAGE>

               payment of the aforementioned compensation for Permitted
               Components, such items shall become the property of NICE, and
               will be promptly delivered to NICE' facility in Israel, and, at
               NICE' election and expense, shall be delivered to another
               location in Israel identified to Contractor by NICE or, at NICE'
               direction, disposed of by Contractor (in any manner selected by
               Contractor). In any event, Contractor will make best reasonable
               commercial efforts to decrease levels of inventory of Permitted
               Components, by agreeing with its suppliers to decrease Purchase
               Lead Times to 1 - 2 weeks at the most.

          3.5. CHANGE ORDERS. Throughout all the assembly phases of a Product
               during the Production Lead Time and any time before the Due Date,
               NICE may issue Contractor with a Change Order. The issuance of
               such Change Order and the execution by Contractor of such Change
               Order, shall be in accordance with the provisions hereunder. Upon
               issuance of a Change Order, Contractor will immediately execute
               it and the Product price shall change in accordance with APPENDIX
               C. The sole implication of a Change Order will be payment for
               additional direct labor costs as detailed in APPENDIX C. Replaced
               components and sub-assemblies will be returned to Contractor's
               inventory at no charge to NICE (without derogating from the
               specific provisions of this Agreement under which NICE is
               obligated to purchase Permitted Components). The Product price
               will be as after the implementation of the Change Order. For
               Change Orders issued prior to commencement of the Production Lead
               Time for any Product no charge will be incurred by NICE. Without
               derogating from the aforementioned, Contractor will not charge
               NICE for Change Orders during the first three (3) months of
               production.

          3.6. RESCHEDULING OF RELEASED ORDERS. NICE may, at its discretion,
               reschedule delivery of units of Products for which a PO has
               already been issued, by shortening the Due Date, without any
               implication. In this respect, Contractor is aware that by the
               last three weeks of every calendar Quarter, a high level of
               flexibility is required to meet NICE' end of Quarter
               requirements. Contractor will perform its best reasonable
               commercial efforts to complete such rescheduled Products at the
               new requested Due Date. All such rescheduling shall be performed
               by sending Contractor a written request for rescheduling.

          3.7. ORDERS ON HOLD. Prior to the Due Date, NICE may, at its
               discretion, place Products manufactured according to PO's on hold
               for a period not to exceed thirty (30) Days from the Due Date,
               without any implications, by giving a written notice to
               Contractor. Upon termination of such 30 Day period or earlier if
               requested by NICE in writing, the Products on hold will be deemed
               as cancelled and the provisions of Section 3.8 below shall apply.

          3.8. CANCELLATION OF PURCHASE ORDERS. NICE may at its discretion, at
               any time, cancel, in whole or in part, PO's of Products issued

                                       18
<PAGE>

               pursuant to this Agreement subject to the delivery of prior
               written notice, before the respective Due Date. Contractor, upon
               receipt of such written notice of cancellation, shall stop work
               on such units of Products if work has already commenced. Without
               derogating from any liability to pay for Permitted Components as
               set forth elsewhere in specific provisions this Agreement, NICE
               shall have no liability for cancellation of a PO prior to the
               Production Lead Time of the Product. For cancellation of a PO
               during the Production Lead Time and until the Due Date, NICE'
               liability for cancellation shall be limited to the following:

               3.8.1. Payment of a fixed cancellation charge for all cancelled
                    units of Products as specified in APPENDIX C. The fixed
                    cancellation charge will be recalculated at the end of the
                    first Quarter, based on the actual average time to
                    disassemble a Product, as determined by Contractor and
                    agreed to by NICE;

               3.8.2. All the components/sub-assemblies will be returned to
                    Contractor's inventory at no charge to NICE subject to and
                    in accordance with the terms of this Agreement.

               3.8.3. NICE shall not be responsible and shall not pay, in whole
                    or in part, for Products manufactured outside the agreed
                    Production Lead Time and/or without a written NICE Purchase
                    Order.

          3.9. Contractor shall use its best reasonable commercial efforts to
               minimize Change Order charges and cancellation charges by
               returning components for credit (with NICE' approval), canceling
               components on order and applying components to other Contractor
               projects (when possible, at the sole discretion of Contractor)
               and minimizing all work-in-process.

          3.10. ENGINEERING CHANGE REQUESTS (ECR'S). NICE shall be entitled, at
               its sole discretion, from time to time to request any Engineering
               Change Requests for any Product and Contractor is obligated to
               propose ECR's to NICE when applicable at Contractor's opinion.
               Contractor will respond to all Engineering Change Requests
               initiated by NICE, according to the terms hereof. Contractor will
               give NICE written notice, within three (3) Business Days of
               receiving written notice of such ECR, of the date by which, and
               at what cost, such ECR could be implemented based on the pricing
               formula in APPENDIX C, and how the ECR effects existing PO's.
               Contractor will charge NICE for ECR's in accordance with APPENDIX
               C (an administrative cost of $25 per ECR of whatever size).

          3.11. ENGINEERING CHANGE ORDERS (ECO'S). NICE may, at its discretion,
               issue ECO's based on Contractor's response to the ECR's or based
               on negotiated changes to Contractor's response. The
               administrative cost for an ECO shall be $50 per ECO. Engineering
               Change Orders effective dates (the date for completion of
               implementation

                                       19
<PAGE>

               of the ECO) shall be as agreed to by the parties and shall effect
               the relevant Lead Times and dates accordingly, as detailed in the
               ECO. Contractor shall approve every ECO issued as above within 2
               Business Days. An ECO shall become binding on Contractor upon
               written confirmation of receipt thereby. Contractor shall not
               make any design changes or any other changes in the Products
               without the prior written consent of NICE as reflected in an ECO.
               The new Product price due to an Engineering Change Order, shall
               be determined in accordance with APPENDIX C. Contractor shall
               make all reasonable commercial efforts to minimize costs due to
               ECO's. Notwithstanding the aforementioned in Sections 3.10. and
               3.11., NICE shall not be charged for the first $1,000 due to
               Contractor in any one month for ECR's and ECO's.

          3.12. DISASSEMBLY OF PRODUCTS. From time to time, NICE may order
               Contractor to disassemble Products after the Due Date. Upon such
               request issued to Contractor, it shall promptly comply with the
               request. Dismantled components will be consigned to Contractor's
               inventory and stored in a special warehouse at Contractor's
               facility, at no charge to NICE (the "RETURNED COMPONENTS"). NICE
               will pay Contractor the original Product price and also a fixed
               fee for dismantling as detailed in APPENDIX C. Thereafter,
               Contractor will use the Returned Components first in the assembly
               of any Products until no inventory of Returned Components
               remains. Contractor will not charge NICE for any surcharge or
               overhead for use of Returned Components in a Product.

          3.13. SPARE PART MECHANISM. In addition to producing Products
               hereunder, and in addition to Contractor's responsibilities under
               its warranty obligation hereunder which are included in the
               Product price as provided herein, Contractor will supply Spare
               Parts to Customers upon request, as detailed in APPENDIX I
               according to the applicable Production Lead Time. The price for
               spare parts shall be in accordance with APPENDIX C and shall be
               paid by NICE in accordance herewith.

     4.   SCOPE; NEW PRODUCTS

          4.1. The scope of this Agreement refers to the Products currently
               detailed in APPENDIX A subject to the provisions of APPENDIX K.
               The Manufacturing Outsourcing Services will be performed by
               Contractor on a gradual basis as detailed hereinabove, and until
               full performance of the Manufacturing Outsourcing Services by
               Contractor for all Products.

          4.2. Quotations by Contractor for new Products will be developed by
               NICE in coordination with Contractor subject to the mutually
               agreed upon pricing model set forth in APPENDIX C hereto. Other
               terms applicable to new Products shall be identical to those
               applicable to the current Products. Each such quotation requested
               by NICE shall be provided to NICE on an expeditious basis.
               Contractor shall develop a mutually agreeable quality program for
               each new Product. The provisions of APPENDIX K - NICE Systems
               Products Release Policy will apply to such new Products subject
               to the terms hereof.

5.   DUE DATE

                                       20
<PAGE>

          5.1. Contractor shall target 100% on time delivery in compliance with
               the Due Date. Contractor's performance regarding the Due Date
               shall constitute a material obligation, and is an essential
               element in this Agreement.

          5.2. DELAYS. Immediately upon learning of any possible delays,
               Contractor will notify NICE as to the cause and extent of such
               delay. Contractor shall at once, exercise its best reasonable
               commercial measures to minimize the possible delay, at no
               additional cost to NICE. Such measures may include, inter alia,
               acceleration of payments to Contractor's vendors if necessary.

          5.3. LIQUIDATED DAMAGES. Any delay from the Due Date of a certain
               Product in a certain Quarter, not due to a specific written
               request by NICE or otherwise deriving from a breach of NICE'
               undertakings hereunder and only to the extent deriving from such
               breach by NICE, or caused by an event of Force Majeure, and
               subject to the terms hereof, shall be considered a material
               breach of Contractor's obligations under this Agreement and shall
               entitle NICE to the following liquidated damages in addition to
               any remedy available to NICE under this Agreement or by law:

               5.3.1. One percent (1%) of the Product Price for a delay of 3 to
                    5 Days.

               5.3.2. Three percent (3%) of the Product Price for a delay of up
                    to 10 Days.

               5.3.3. Five percent (5%) of the Product Price for a delay of 11
                    Days or more.

               5.3.4. For the removal of doubt, when determining the liquidated
                    damages due, the applicable sub-section 5.3.1, 5.3.2 OR
                    5.3.3 will apply. In any event, the total liquidated damages
                    as per this Section shall not exceed 5% of the Product
                    Price.

               5.3.5 The "PRODUCT PRICE" for the purpose of this Section 5.3.
                    shall mean the total consideration which is due to
                    Contractor for the Products being delayed at the relevant
                    time.

               5.3.6. In the event that following the delay, Contractor is in
                    compliance with the Due Dates for two immediately
                    consecutive Quarters and there is no delay whatsoever,
                    Contractor will be reimbursed by NICE for liquidated damages
                    already paid for delay in the previous Quarter (before the
                    said 2 Quarters), if paid, without derogating from the
                    previous delay being regarded as a breach hereunder.

               5.3.7 NO RESPONSIBILITY FOR DUE DATE. Notwithstanding the
                    aforementioned, Contractor shall be relived from its
                    responsibility for the Due Date of any specific Product if
                    all the following terms are met:

                    (1)  Contractor notifies Nice promptly in writing of the
                         delay and the detailed reasons for the delay;

                    (2)  Contractor proves that such delay was caused by a
                         worldwide event of component allocation or a worldwide
                         event of Force Majeure (as defined in this Agreement)
                         applying to a manufacturer of necessary components
                         required for assembly of the Product and such
                         components can not be purchased from another
                         manufacturer, since the manufacturer with which
                         Contractor has contracted (directly or through
                         suppliers) is a single source manufacturer worldwide
                         or, if there is more than one source - the above
                         applies to all of them;

                                       21
<PAGE>

                    (3)  Contractor proves, that it has employed all necessary
                         measures, both upon contracting with the supplier
                         (including but not limited to - contracting other
                         suppliers) and after becoming aware of the delay, in
                         order to ensure proper timely delivery by such supplier
                         and in accordance with the agreed Purchase Lead Time in
                         this Agreement;

                    (4)  Contractor takes all required actions in order to
                         minimize the effects of such occurrence and solve it.

6.   SHIPMENT DATE, PACKING AND SHIPPING

          6.1. PACKING. Contractor shall package each unit of Product according
               to the standard NICE packing procedure and specifications in
               accordance with the PDM System, or, if not specified by NICE,
               according to good commercial standards. Every shipment to a NICE
               Customer must include a Packing List issued by the Contractor,
               attached to the packed Product. The Packing List is derived from
               the Purchase Order and includes all the packed items in the
               carton and all software licenses associated with the Product.

          6.2. PREPARATION OF EXPORT SHIPMENTS. Contractor will be responsible
               for preparing the shipment of the final Product to the Customer
               by arranging the pallets and packing them according to NICE'
               instructions as set forth in the PDM System.

          6.3. DELIVERY. Unless agreed otherwise in the future, Contractor will
               deliver finished Products to NICE' designated freight forwarder,
               at Contractor's premises.

          6.4. SHIPMENT DATES. The following Shipment dates shall apply:
               Shipment plans that Contractor receives until 13:00, will be
               ready until the end of the same Day (except that on weekend days
               prior coordination will be required); Shipment plans that
               Contractor receives after 13:00, will be ready until the end of
               the next Day (except that on weekend days prior coordination will
               be required).

               Contractor's performance regarding the Shipment Date shall
               constitute a material obligation, and is an essential element in
               this Agreement.

          6.5. INSPECTION. Products will be subject to inspection by NICE, or by
               certified NICE' distributors according to the following
               provisions, both prior to the Shipment Date while they are in the
               finished goods warehouse and after the Shipment Date. During the
               inspection, NICE may open cartons and boxes and unpack the
               contents for inspection. An inspection will be coordinated if
               possible. NICE may inform the Contractor if there is any mismatch
               in Product quantities or if any damage was caused to the shipment
               prior to delivery to NICE' freight forwarder in Contractor's
               facility. In case of a quantity mismatch between the quantity
               recorded on the packing documents and the actual quantity
               received, NICE will notify Contractor

                                       22
<PAGE>

               of the mismatch, and, subject to verification by Contractor,
               Contractor will complete the missing quantity. In case where a
               shipment is found damaged prior to delivery to NICE' freight
               forwarder at Contractor's facility, the Contractor will replace
               or repair the Product and deliver it back to such NICE' freight
               forwarder at Contractor's facility, at Contractor's expense. If
               there was no mismatch in quantities or no damage to the shipment
               (as applicable), NICE will bear all risk and costs associated
               with the delivery of shipment to Contractor and back.

7.   [DELETED]

8.   PAYMENTS

          8.1. Initial prices as proposed in the Proposal are set out in
               APPENDIX C. Within one month from signature of this Agreement,
               the parties will amend the initial APPENDIX C according to
               components purchase prices and supplier agreements obtained by
               Contractor, but in no event will the relevant data exceed the
               data included in the initial APPENDIX C, except with respect to
               components sold to Contractor by NICE according to APPENDIX F and
               Section 2.7, or further to changes in APPENDIX C made pursuant to
               NICE' instructions under Sections 2.2, 2.3 or 2.4 of this
               Agreement. Contractor will use reasonable commercial efforts to
               improve the particulars in APPENDIX C and, amongst others,
               shorten Liability. In the event of lack of agreement on the
               amended APPENDIX C within one month from the signature date, the
               initial Appendix C shall continue to apply until agreed
               otherwise. It is clarified that labor prices in APPENDIX C will
               not be amended as aforementioned regarding components. Contractor
               hereby declares and undertakes that the details included in
               APPENDIX C(as amended from time to time according to the
               provisions of this Agreement) shall be the accurate details from
               all of the relevant purchase agreements of Contractor with its
               suppliers and components and sub assembly prices in APPENDIX C
               shall be net purchase prices by Contractor without any overhead
               or uplift. Thereafter, prices may be decreased or increased
               according to the formula and at the timetables detailed herein
               below.

          8.2. COST ADJUSTMENTS. Product pricing shall remain firm for Products
               for each Quarter, except as follows or as set forth in Sections,
               2.2, 2.3, 2.4, 3.5, 3.8, 3.11, 8.1, 8.3, and hereunder in the
               various subsections of Section 8.2:

               8.2.1. The quoted cost of all components and sub-assemblies in
                    each Product subject to this Agreement is or will be set
                    forth in APPENDIX C or an agreed written amendment thereto.

               8.2.2. NICE and Contractor shall continually work to introduce
                    new cost reduction methods.

                                       23
<PAGE>

                    Contractor shall make its best reasonable commercial efforts
                    to reduce the cost of manufacturing Products, by methods
                    such as elimination of components, obtaining alternate
                    sources of materials, redefinition of specifications, and
                    improved assembly or test methods, subject to NICE' written
                    approval. Upon implementation of such methods initiated by
                    Contractor, Contractor will enjoy one hundred percent (100%)
                    of the cost reduction during the first Quarter and
                    thereafter will reduce the price accordingly so that NICE
                    will enjoy one hundred percent (100%) of the cost reduction.
                    NICE will immediately enjoy one hundred percent (100%) of
                    the cost reduction upon implementation of such methods
                    initiated by NICE.

               8.2.3. In the event there is a decrease in the cost of a
                    component or sub-assembly purchased by Contractor for the
                    purposes hereof, which affects the purchase price of such
                    Product, Contractor shall document such decrease in costs
                    and provide such information to NICE in writing, in
                    reasonable detail, within three (3) Business Days of
                    Contractor becoming aware of such decrease.

               8.2.4. In case of a decrease as aforementioned, the purchase
                    prices in APPENDIX C for units of the affected Product shall
                    be adjusted accordingly.

               8.2.5. In the event there is an increase in the cost of a
                    Permitted Component purchased/to be purchased by Contractor
                    for the purposes hereof, which affects the purchase price of
                    such Product, Contractor shall provide NICE with copies of
                    letters as elaborated below, together with a request for a
                    "price increase" within one (1) Business Days of Contractor
                    becoming aware of such increase. Contractor shall not
                    purchase any such component until NICE approves it in
                    writing. NICE shall approve/disapprove on the same Business
                    Day it was notified by Contractor provided notice was
                    received by 12:00. However, NICE may only reject a price
                    increase if it can show that the Permitted Component is
                    available at the a lower price. There are two permitted
                    types of price increases:

                    (i)  TEMPORARY PRICE INCREASE designated to meet the
                         requested Due Date, in the event of receiving a
                         Purchase Order/Forecast for which the Purchase Lead
                         Time is shorter than the normal Purchase Lead Time of
                         the relevant components detailed in APPENDIX C or due
                         to an Engineering Change Order which affects the Due
                         Date. Contractor shall provide NICE with copies of
                         letters of approach to at least 3 suppliers that are
                         known in the market and accepted commonly (if 3
                         suppliers exist for such component) and their response.
                         In such event, NICE will pay Contractor the difference
                         between the original price and the actual price for
                         those components purchased after the increase.

                                       24
<PAGE>

                    (ii) CONSTANT PRICE INCREASE caused by a change in the
                         market trend. Market trend increase requests will be
                         explained by providing NICE with copies of letters of
                         approach to at least 3 suppliers that are known in the
                         market and accepted commonly (if 3 suppliers exist),
                         and their response. NICE will pay Contractor the
                         difference between the original price and the actual
                         price for those components purchased after the increase
                         within the Quarter, and thereafter APPENDIX C shall be
                         updated accordingly.

          8.3. COST REVIEW. During each calendar Quarter, no later than the
               third week of the Quarter, the parties will jointly review the
               costs, costs reduction, volume performance of Contractor and
               NICE, respectively, and other performance parameters to be
               mutually agreed upon by the parties. The pricing and other
               details referenced in APPENDIX C shall be jointly reviewed by the
               parties at an agreed upon frequency and may be modified with the
               mutual written agreement of the parties.

          8.4. PAYMENT TERMS.

               8.4.1. Payment by NICE is due current thirty (30) Days from the
                    date of receipt of the invoice, on the 2nd or 16th of the
                    month, whichever is following the invoice date and may be
                    made by check or wire transfer. Purchase Orders, invoices
                    and payments will be presented and effected in US dollars.

               8.4.2. Dates of issuance of invoices by Contractor: 1. for
                    Products - upon the actual Due Date of Products. 2. for
                    inventory of Permitted Components - one day before the
                    beginning of the First Quarter as defined in Section 3.4(A).
                    3. for amounts outstanding upon termination according to the
                    relevant provisions of this Agreement - upon termination. 4.
                    for other amounts - upon the date on which the payment
                    becomes due under this Agreement.

               8.4.3. Payment by Contractor is due current thirty (30) Days from
                    the date of receipt of the invoice, except as set forth in
                    Section 8.4.4(2) below, and may be made by check or wire
                    transfer. Invoices and payments will be presented and
                    effected in US dollars.

                                       25
<PAGE>

               8.4.4. Dates of issuance of invoices by NICE: 1. for inventory of
                    Permitted Components repurchased - at the end of the month
                    in which such components were repurchased by Contractor. 2.
                    for NICE existing inventory purchased by Contractor
                    according to Section 2.7 - upon commencement of the first
                    production Quarter with respect to inventory to be purchased
                    on such date, upon the commencement of the second production
                    Quarter with respect to inventory to be purchased on such
                    date, and the remainder upon the relevant Purchase Lead
                    Times for each component. The payment of said invoices will
                    be made on a current thirty basis from the date of use of
                    such inventory by Contractor based on the most updated
                    Forecast. 3. For Permitted Components purchased from
                    Contractor according to Section 3.4.(A) - upon the relevant
                    Purchase Lead Times for each component. 4. For other amounts
                    - upon the date on which the payment becomes due under this
                    Agreement.

          8.5. TAXES. Each party shall deduct such taxes from the payments due
               to the other party hereunder as required by law including
               withholding taxes (unless an exemption is provided), and shall
               promptly furnish such other party with appropriate tax receipts.
               Each party will be solely responsible for any and all taxes
               imposed thereon, including, without limitation, all income taxes,
               sales taxes, goods and services taxes. Israel value added tax
               shall be added, if applicable, to all amounts payable hereunder
               and will be paid against submission of appropriate tax invoices.

          8.6. The consideration detailed in the Agreement is the full and
               entire consideration due to Contractor for the services
               stipulated hereunder and Contractor shall not be entitled to any
               other payment or reimbursement of expenses of any kind with
               respect thereto.

9.   REPRESENTATIONS AND WARRANTIES

          9.1. Contractor hereby warrants to NICE that it has the full corporate
               power and authority to enter into this Agreement and to perform
               its obligations hereunder; that no impediment exists to
               Contractor entering into this Agreement, and no other agreement
               has been or will be made with any third party which will have a
               detrimental effect on Contractor's ability to fulfill its
               obligations under this Agreement.

          9.2. Contractor hereby warrants to NICE that it has ascertained the
               nature of the Manufacturing Outsourcing Services and its own
               ability to perform such Manufacturing Outsourcing Services, and
               that all Manufacturing Outsourcing Services provided by
               Contractor hereunder will be performed in a professional and
               workmanlike manner by a sufficient number of individuals with
               appropriate skills and training for the applicable task using
               systems and processes which are sufficient to accomplish the
               Contractor performance

                                       26
<PAGE>

               obligations under this Agreement. In addition, without derogating
               from any undertaking, warranty or representation of NICE included
               in the Agreement, Contractor acknowledges and agrees that prior
               to the entering into this Agreement it has had the ability to
               perform a due diligence investigation into the manufacturing,
               production, testing and delivery as performed by NICE up to and
               including the date hereof, that it has in fact performed such an
               investigation and that based upon the outcome thereof, it
               believes that it has the professional and other capabilities to
               perform the Manufacturing Outsourcing Services as set forth
               herein in a professional and workmanlike manner.

          9.3. Contractor further warrants that it is duly licensed, authorized,
               or qualified to do business and in good standing in every
               jurisdiction in which a license, authorization, or qualification
               is required for the ownership or leasing of its assets, of the
               transactions of business of the character transacted by it except
               where the failure to be so licensed, authorized, or qualified
               would not have a material adverse effect on Contractor's ability
               to fulfill is obligations under this Agreement.

          9.4. PRODUCT WARRANTY. Contractor warrants to NICE that each of the
               Products manufactured, configured or tested by Contractor will
               have been manufactured, configured and tested in conformance with
               the Specifications therefor as provided by NICE and be free from
               defects in workmanship or material for the Warranty Period. It is
               clarified for the avoidance of doubt, that the aforesaid warranty
               of Contractor for the Products applies to the entire Product,
               including components and workmanship, except when the defect or
               malfunction results from the design, NICE Software or the Nice
               Components supplied by NICE under this Agreement if Contractor
               cannot obtain warranty service for same from the supplier (and
               Contractor shall notify NICE accordingly), for which NICE shall
               be responsible.

          9.5. Contractor shall be responsible for procurement of components as
               set forth herein, inspection of components, and safe handling of
               the components while in-house at Contractor's premises.

          9.6. RMA. Should a Product fail to be in conformity with the above
               warranties during the Warranty Period, NICE shall deliver the
               Product to Contractor at its expense, Contractor shall repair or
               replace the Product at no charge (as set forth in Section 9.7
               below), and will cover all shipment and delivery costs of
               therepaired or replaced Product from Contractor's facility to
               NICE' Customer location (whether in Israel or abroad). In the
               case that the determination according to Section 9.9 below, is
               that Contractor's warranty hereunder does not apply, NICE will
               bare all shipment and delivery costs of the Product/s and their
               return, and of any repair/replacement costs if requested by NICE,
               according to APPENDIX C. Detailed procedures to be executed by
               Contractor concerning the repair of defective/malfunctioning
               Products subject to the warranty hereunder are included in
               APPENDIX N - Return Material Authorization ("RMA").

                                       27
<PAGE>

          9.7. WARRANTY SERVICE. Contractor shall replace any such Product with
               a new Product except when the defect is in the NICE proprietary
               boards, in which case Contractor may repair the Product.
               Contractor will deliver the repaired or replacement unit to NICE,
               within seven (7) Days of Contractor's receipt of such Product or
               parts thereof. NICE may require a shorter repair and replacement
               time for up to ten percent (10%) of the returned Products for
               warranty service, and Contractor shall use its best reasonable
               commercial efforts to accommodate same.

               NICE shall provide Contractor a spares forecast for warranty
               requirements for the period up and until July 1, 2002. If during
               such period, the spare parts required for warranty service alone
               exceed the spares forecast provided by NICE, NICE shall sell
               Contractor the missing spares at the prices specified in APPENDIX
               C. Nevertheless, NICE shall have no liability in the event the
               spares forecast exceeds the actual spares used during that
               period. As of July 1, 2002 purchasing of spares in order to
               comply with the warranty obligations shall be the sole
               responsibility of Contractor and no forecast shall be provided.

               On or about July 1, 2002 the parties will review the said 7 days
               timetable, and any changes in such timetable shall need to be
               agreed in advance in writing, both Parties acting reasonably and
               in good faith. Nothing contained in the foregoing shall obligate
               NICE to change such warranty timetable since its Customer
               obligations are dependent on it.

               The units of Products for which action may be required under this
               warranty shall be returned to Contractor's manufacturing
               facility, at NICE' expense, with an accompanying Contractor
               supplied RMA and correction / replacement time shall commence
               upon return of the defective Product to Contractor's facility.
               The RMA will include a packing slip only and will not include an
               invoice.

          9.8. ADVANCED RMA. From time to time, NICE may request that the
               Contractor supply RMA to NICE Customers prior to receipt by
               Contractor of the failed Products. In such event, replacement
               time shall be 7 Days of receipt of the RMA and NICE will be
               responsible for the return of the failed Product or parts
               thereof, respectively, to the Contractor within sixty (60) Days
               from the delivery of the said RMA. If the failed Product is not
               returned within same period, Contractor shall invoice NICE for
               the replaced Product supplied.

          9.9. DETERMINING DEFECT SOURCE. NICE and Contractor will use their
               best commercial efforts to determine whether a defect in a unit
               of Product exists and the reason for such defect. In the event of
               dispute

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               whether the source of a defect is subject to Contractor's
               warranty as detailed in Section 9.4, the parties will assign a
               joint MRB (Material Review Board) team to determine the source of
               defect, whose decisions must be mutually agreed to by both
               parties. NICE shall perform any investigation/examination
               reasonably requested by Contractor. In the event that the joint
               MRB team can not reach a mutually agreed decision, Contractor
               shall be deemed responsible for the warranty repair or
               replacement, unless Contractor proves otherwise, and NICE shall
               supply Contractor with all necessary information to assist in
               such determination. It is clarified that in the event of a
               dispute as aforementioned regarding the source of a defect,
               Contractor shall, nevertheless, continue its warranty obligations
               in a timely manner and will not withhold delivery of repaired and
               replaced Products, but may demand further investigation by the
               MRB team as above.

          9.10. WARRANTIES PROVIDED BY THIRD PARTIES. If and to the extent
               warranties provided by third parties for components or
               sub-assemblies (forming an integral part of the defective Product
               sold to NICE hereunder) that Contractor/anyone on its behalf
               purchases under this Agreement, exceed the Warranty Period
               hereunder, Contractor shall ensure that NICE will benefit from
               such warranties included in agreements with suppliers as detailed
               in Section 2.2 above and use its best reasonable commercial
               efforts so that NICE may benefit from such warranties included in
               agreements with suppliers as detailed in Section 2 above, at
               Contractors' expense. Contractor will cooperate with NICE in its
               efforts to exercise its rights under such warranties for their
               entire duration. The aforementioned shall apply both during and
               after the term of this Agreement.

          9.11 POST-WARRANTY RMA. Contractor shall provide post-Warranty RMA
               services to NICE in accordance with the procedures in APPENDIX N
               and the prices in APPENDIX C.

9A.  NICE REPRESENTATIONS AND WARRANTIES

     9A.1. NICE hereby warrants to Contractor that it has the full corporate
          power and authority to enter into this Agreement and to perform its
          obligations hereunder; that no impediment exists to NICE entering into
          this Agreement, and no other agreement has been or will be made with
          any third party which will have a detrimental effect on NICE' ability
          to fulfill its obligations under this Agreement.

     9A.2 NICE hereby warrants to Contractor that it has the financial ability
          to perform its obligations under this Agreement.

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10.  AUDIT AND ACCESS

     10.1. REPORTS. Contractor shall provide to NICE periodical reports in the
          format acceptable by NICE and agreed by Contractor, which shall be
          submitted each week, unless agreed otherwise in writing. In addition,
          NICE may request other reports pertaining to the Outsourcing
          Manufacturing Services and Contractor will promptly comply with such
          requests, to the extent reasonable.

     10.2. GENERAL. NICE shall have the rights to conduct audits of the
          Manufacturing Outsourcing Services and related facilities, systems,
          and records as set forth in this Section 10 for the purpose of
          auditing Contractor's compliance with the provisions of this
          Agreement, all subject to the limitations below. The audits shall
          include the physical equipment designated for the Manufacturing
          Outsourcing Services provided hereunder, the facility at Contractors'
          premises designated for the Manufacturing Outsourcing Services
          including the finished goods warehouse, the inventory designated for
          the Manufacturing Outsourcing Services provided hereunder and any
          records, supporting documentation, equipment and information
          pertaining solely to NICE and this Agreement, provided that with
          regard to records pertaining to inventory/components, in addition to
          the particulars detailed in Sections 2.2 and 2.3, NICE will have
          access to the ERP system at Contractor's facility only (including for
          the avoidance of doubt, the modules of the ERP system dealing with
          invoices and invoicing). No documents or data of any kind, or any
          copies, may be removed from Contractor's facility and all audits shall
          be performed within such facility only.

     10.3. Such audits are expected to occur frequently given the significant
          security and business practices concerns inherent in the Manufacturing
          Outsourcing Services and NICE shall have the sole discretion, not to
          be unreasonably applied, to determine the frequency. NICE agrees to
          conduct the audits in a reasonable manner so as not to cause undue
          disruption to Contractor's provision of the Manufacturing Outsourcing
          Services and such audits shall be conducted during business hours, and
          shall be coordinated with Contractor. In the course of such audits
          Contractor shall provide, and shall cause its Permitted Subcontractors
          to provide, such auditors any reasonable assistance that they may
          require. Such reasonable assistance shall be provided as part of the
          Manufacturing Outsourcing Services.

     10.4. If any audit by an auditor designated by NICE results in Contractor
          being notified that it or its Permitted Subcontractors are not in
          compliance with any law or regulation, Contractor shall, and shall
          cause its Permitted Subcontractors to, take actions to comply with
          such law or regulation, at Contractor's or its Permitted
          Subcontractor's expense.

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<PAGE>

     10.5. RESULTS OF AUDITS. If, as a result of an audit, NICE determines that
          Contractor has undercharged or overcharged NICE, NICE shall notify
          Contractor in writing of the amount of such undercharge or overcharge,
          and shall specify the relevant data and the reasoning for its
          determination. If Contractor agrees in writing, an appropriate
          adjustment shall promptly be paid to NICE or Contractor. In the event
          Contractor believes that it has complied with the relevant law,
          regulation or this Agreement, and has not overcharged or undercharged
          NICE, it shall so notify NICE in writing upon receipt of NICE' audit
          results shall specify the relevant data and the reasoning for its
          determination and the parties will attempt to determine the issue in
          mutual consent.

     10.6. CONTRACTOR RECORD RETENTION AND ACCESS. As part of the Manufacturing
          Outsourcing Services, Contractor shall (1) retain records and
          supporting documentation detailed in Section 10.2 above if and to the
          extent such record retention is required by tax or similar
          authorities, and/or exists in the ERP system, and/or is common
          practice in the industry, including but not limited to - production
          files for the following periods: 7 years for records required by tax
          or similar authorities and ERP data, 3 years for production files,
          otherwise as required by law or as is the common practice, and (2)
          upon notice of no less than five (5) Days from NICE, provide NICE and
          its designees with reasonable access to such records and documentation
          for the purpose of conducting NICE' business and reporting. Such
          access shall only be provided to audit personnel who have signed
          towards Contractor a non-disclosure undertaking incorporating terms
          which are substantially the same as those in APPENDIX E.

     10.7 All audits of all kind by NICE shall be subject to the confidentiality
          obligations of NICE to Contractor detailed in this Agreement.

11.  SAFETY AND SECURITY, FACILITIES, NON-GENERIC EQUIPMENT

     11.1. SAFETY AND SECURITY. Contractor shall maintain and observe, at its
          premises, all the safety and security requirements detailed in
          APPENDIX H and ascribed by law.

     11.2. SECURITY SERVICES. Contractor shall institute, maintain, and monitor
          security services for all Manufacturing Outsourcing Services in
          accordance with APPENDIX H.

          Contractor's security procedures shall be subject to audit as set
          forth in Section 10.

     11.3. FACILITY. Contractor's facility at which the Manufacturing
          Outsourcing Services will be performed shall comply, at a minimum,
          with the requirements set forth in APPENDIX H.

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<PAGE>

     11.4. APPROVAL OF LOCATION. NICE shall have the right to approve or
          disqualify each location at which Contractor is providing any of its
          services hereunder. Contractor agrees that the Manufacturing
          Outsourcing Services will be performed in a dedicated space in
          Contractor's facility in which no production of competing products
          will be conducted. Access to the NICE production lines will be limited
          only to Contractor's employees performing the Manufacturing
          Outsourcing Services and NICE representatives.

     11.5. NON GENERIC EQUIPMENT. During the term of this Agreement, the Non
          Generic Equipment shall be furnished to Contractor (without charge)
          and used in Contractor's premises for purposes of performing its
          various obligations under this Agreement, according to the terms
          hereof. Such Non Generic Equipment shall:

          (1)  Be clearly marked and identified as NICE' property.

          (2)  Be safely stored, adequately maintained and insured against loss
               or damage under Contractor's existing policies detailed in
               APPENDIX D. In the event such Non Generic Equipment is damaged,
               lost or destroyed, Contractor shall be liable towards NICE to
               repair or replace such equipment (at Contractor's choice).

          (3)  Remain the sole property of NICE, and therefore shall be kept
               free of liens and encumbrances imposed on Contractor's property.

          (4)  Be returned to NICE upon request, or upon termination of this
               Agreement, at the same condition as originally furnished to
               Contractor except for normal wear and tear. Notwithstanding
               anything to contrary, if NICE requests to have the Non Generic
               Equipment returned thereto prior to the termination of the
               relevant services hereunder, Contractor shall have no liability
               or obligation for the performance of any obligations hereunder
               for which such Non Generic Equipment is reasonably required.
               Contractor shall notify NICE in writing in detail of the
               aforementioned, promptly upon NICE' request to receive the Non
               Generic Equipment.

          (5)  Be used according to NICE' written instructions and information
               concerning such Non Generic Equipment.

          (6)  Shall not be used by Contractor for any other purpose except for
               NICE' needs and shall be dedicated for performance of this
               Agreement.

          (7)  Nevertheless, NICE may request Contractor to purchase some Non
               Generic Equipment by itself and in such event Contractor shall
               invoice NICE for the purchase price. Such equipment shall be
               deemed for all purposes as part of the "Non Generic Equipment"
               and shall be sold to NICE upon termination of this Agreement for
               any reason, at a total sale price of 1$.

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12.  CONFIDENTIAL INFORMATION, INTELLECTUAL PROPERTY AND INTELLECTUAL PROPERTY
     INDEMNIFICATION, PUBLICITY

     12.1 OWNERSHIP AND LICENSE RIGHTS. NICE or its customers, partners,
          suppliers, and contractors shall be the sole owner of all NICE
          Proprietary Information and NICEIntellectual Property (as defined
          below) to which Contractor has access in the performance of the
          Manufacturing Outsourcing Services including but not limited to - in
          connection with the Products. Except for the licenses granted herein,
          Contractor or anyone on its behalf shall not acquire any right, title,
          or interest to the NICE Proprietary Information and/or NICE
          Intellectual Property. Especially, but without limitation, NICE shall
          remain the owner of all NICE Proprietary Information and NICE
          Intellectual Property in connection with the design of the Products
          and the NICE Software. For the purposes hereof, "NICE INTELLECTUAL
          PROPERTY" shall mean Intellectual Property conceived, created, reduced
          to practice or developed by NICE and/or for NICE by a third party,
          and/or for NICE by Contractor (including anyone on its behalf) in
          accordance with this Agreement, for the purpose of performing the
          Manufacturing Outsourcing Services.

     12.2. CONFIDENTIALITY BY CONTRACTOR. Contractor will provide the
          Manufacturing Outsourcing Services in a manner that complies with the
          Confidentiality requirements of APPENDIX E. Contractor shall not:
          transfer to others, copy or duplicate, sub-license, sell, publish,
          display or otherwise make available in any form or disclose, the NICE
          Proprietary Information and/or the NICE Software and/or the NICE
          Intellectual Property, to any third party, except to
          suppliers/manufacturers of components and/or sub assemblies that
          require specifications for their supply, in which case they shall be
          required by Contractor to execute a Confidentiality Agreement in the
          form of APPENDIX E VIS-A-VIS NICE. Contractor shall use the same
          degree of care with respect to NICE Proprietary Information as it uses
          in protecting its own proprietary information and trade secrets.

          Without derogating from the aforementioned, Contractor shall not, in
          any way or manner, directly or indirectly, engineer, reverse engineer,
          compile, decompile or reverse assemble the NICE Software, or analyze
          or otherwise examine the NICE Software for the purpose of reverse
          engineering.

     12.3. In addition, Contractor shall not disclose the NICE Proprietary
          Information to any Personnel, except on a need to know basis as
          required in order to implement this Agreement. Contractor undertakes
          to procure that its Personnel and Permitted Subcontractors engaged in
          performance of this Agreement (except subcontractor's employees who do
          not have access to the NICE production lines at Contractor's
          premises), and reasonably designated by NICE in advance in writing,
          have signed a non-disclosure agreement in the form of APPENDIX E,
          prior to receipt of any NICE Proprietary Information.

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<PAGE>

          12.3A Notwithstanding anything to the contrary, Contractor shall have
               no liability with respect to disclosure of NICE Proprietary
               Information if such information came into the possession of the
               Contractor independently of this Agreement, through a breach of
               obligation of secrecy of a third party to NICE, of which
               Contractor was not aware and should not have been aware if
               Contractor had exercised due care.

     12.4. CONFIDENTIALITY BY NICE. NICE shall not: transfer to others, copy or
          duplicate, sub-license sell, publish, display or otherwise make
          available in any form or disclose, the Contractor's Proprietary
          Information, to any third party, except for the purpose of performing
          this Agreement. NICE shall use the same degree of care with respect to
          such Contractor's Proprietary Information as it uses in protecting its
          own proprietary information and trade secrets. All rights in
          Contractor's Proprietary Information, shall remain solely with
          Contractor. Notwithstanding the aforesaid, it is agreed that any
          manufacturing methods applied by Contractor, which are Contractor's
          Proprietary Information, may be used by NICE itself (including its
          Affiliates) (but may not be transferred/disclosed to any third party)
          and by signing this Agreement Contractor hereby grants NICE a
          personal, non exclusive, non transferable, perpetual license to use
          such manufacturing methods.

          12.4A Notwithstanding anything to the contrary, NICE shall have no
               liability with respect to disclosure of Contractor Proprietary
               Information if such information came into the possession of NICE
               independently of this Agreement, through a breach of obligation
               of secrecy of a third party to Contractor, of which NICE was not
               aware and should not have been aware if NICE had exercised due
               care.

     12.5. LEGAL OBLIGATION TO DISCLOSE. In the event a party is required to
          disclose Proprietary Information of the other party, by applicable law
          or by any government in the exercise of its lawful authority, the
          party so required shall (i) promptly notify the other party in
          writing, and, at the other party's expense: (ii) use reasonable and
          lawful efforts to resist making any disclosure of Proprietary
          Information not approved by the other party, (iii) use reasonable and
          lawful efforts to limit the amount of Proprietary Information to be
          disclosed pursuant to any such disclosure, and (iv) cooperate with the
          other party to obtain a protective order or other appropriate relief
          to minimize the further dissemination of any Proprietary Information
          to be disclosed pursuant to any such disclosure.

     12.6. INTELLECTUAL PROPERTY INDEMNIFICATION BY CONTRACTOR. Contractor shall
          indemnify, hold harmless and defend NICE from and against any and all
          damages (including all damages awarded to a third party and payable by
          NICE), costs, losses, and expenses (including settlement awards and
          reasonable attorney's fees) arising from any claim or suit made
          against NICE or a third party which NICE is obligated to indemnify, by
          a third party based on the allegation that the Products infringe or
          violate any Intellectual Property right due to the components and/or
          sub assemblies supplied by Contractor hereunder and/or the
          manufacturing processes and methods as performed by Contractor
          hereunder. Contractor shall include in all its agreements with
          suppliers/ manufacturers provisions regarding Intellectual Property
          indemnification substantially similar to those included in this
          Agreement, providing inter alia that they are freely assignable to
          NICE without any modification or consent.

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<PAGE>

          Nevertheless, in the event NICE designates specific components to be
          purchased by Contractor hereunder and the manufacturer/supplier of
          such NICE designated components refuses to grant Contractor
          indemnification for infringement of Intellectual Property rights,
          despite Contractor performing its best reasonable commercial efforts
          to obtain such indemnification (which Contractor shall prove to NICE
          by submission of copies of its correspondence with the manufacturer
          including the manufacturer's response), then if NICE approves purchase
          of such components, Contractor shall not be responsible for
          Intellectual Property indemnification due to those specific
          components.

          For the removal of doubt, Contractor shall not be liable for any
          infringement of an Intellectual Property right due to any NICE
          Proprietary Information, NICE Intellectual Property, NICE Software,
          Non Generic Equipment (if used in accordance with the instructions
          provided by NICE), and due to performance as is of NICE written
          instructions including specifications and design.

               Contractor's indemnification as provided under this Section shall
               apply only if: Contractor is notified promptly in writing of any
               notice of a claim or of a threatened or actual suit; and is given
               control of the defense thereof and all related settlement
               negotiations; and, NICE provides, at Contractor's request and
               expense, all reasonable cooperation and assistance for the
               defense and negotiations of the claim. Nevertheless, in the event
               the claim or suit is based on the allegation that the Products
               infringe or violate any Intellectual Property right due to the
               components and/or sub assemblies supplied by Contractor hereunder
               which were designated by Nice as aforementioned, and the supplier
               / manufacturer of the infringing component has an indemnity
               undertaking as above towards Contractor; (i) which is assignable
               to NICE and Contractor promptly assigns to NICE such
               indemnification undertaking from its supplier / manufacturer;
               (ii) which is unassignable to NICE but Contractor notifies NICE
               promptly in writing of any notice of the claim or of a threatened
               or actual suit; and gives NICE on behalf of Contractor and NICE'
               chosen counsel control of the defense thereof and all related
               settlement negotiations; then in both such instances Contractor
               shall not be responsible for Intellectual Property
               indemnification with respect thereto. In all other events,
               Contractor shall conduct the litigation as aforementioned.

     12.7. Following establishment of infringement of Intellectual Property by a
          competent authority including at interlocutory proceedings, whether
          Contractor is responsible therefor or not, NICE may issue an ECR and
          Contractor will handle such ECR and the corresponding ECO promptly in
          accordance with Sections 3.10, 3.11.

     12.8. INTELLECTUAL PROPERTY INDEMNIFICATION BY NICE. NICE shall indemnify,

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<PAGE>

          hold harmless and defend Contractor from and against any and all
          damages (including all damages awarded to a third party and payable by
          Contractor), costs, losses, and expenses (including settlement awards
          and reasonable attorney's fees) arising from or in connection with any
          claim or suit made against Contractor or a third party which
          Contractor is obligated to indemnify, by a third party based on an
          allegation that the Products and/or the NICE Software infringe or
          violate any Intellectual Property right, including due to the use of
          any NICE Proprietary Information, NICE Intellectual Property, NICE
          Software, Non Generic Equipment (if used in accordance with the
          instructions provided by NICE), or due to performance as is of any
          NICE written instructions including specifications and design, but
          excluding any allegation that the Products infringe or violate any
          Intellectual Property right due to the components and/or sub
          assemblies supplied by Contractor hereunder and/or the manufacturing
          processes and methods as performed by Contractor hereunder for which
          Contractor is liable as per Section 12.6. above.

          NICE' indemnification as provided under this Agreement shall apply
          only if: NICE is notified promptly in writing of any notice of a claim
          or of a threatened or actual suit; and is given control of the defense
          thereof and all related settlement negotiations; and, Contractor
          provides, at NICE' request and expense, all reasonable cooperation and
          assistance for the defense and negotiations of the claim.

     12.9. EMPLOYEE AND CONTRACTOR INDEMNIFICATION. Each of the parties agrees
          that it will indemnify the other party against any and all claims
          hereafter brought or asserted by any person against the other party
          relating to any alleged or actual action or omission to act by the
          indemnifying party arising from, or in connection with, such person's
          status as an employee or independent Contractor of the indemnifying
          person or the termination of such status.

     12.10. PUBLICITY. Except with the express written consent of NICE,
          Contractor shall not make any press announcement or publicize this
          Agreement or any matters relating to any of the transactions
          contemplated hereby or use NICE' name or trademark in any way
          whatsoever, except to the extent required to comply with applicable
          laws or governmental regulations, provided that Contractor acts
          according to Section 12.5.

13.  INSURANCE

     13.1. Contractor shall be liable for the total or partial loss of or damage
          to the components and/or the Products in so far as such loss or damage
          has occurred while in Contractor's possession and until delivery of
          the Products to NICE' freight forwarder at Contractor's facility.

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<PAGE>

     13.2. Without limiting any of the obligations or liabilities of Contractor,
          whether under this Agreement or by law, subject to any limitations
          hereunder, Contractor shall maintain, and shall cause any
          subcontractors engaged by Contractor to provide services under this
          Agreement to maintain, at Contractor's own expense, as long as this
          Agreement is in effect, insurance policies of the kind and limits as
          set forth in APPENDIX D to this Agreement. The expense of such
          insurance shall be borne by Contractor. The Contractor shall keep in
          force the policies specified in sections 1 and 3 to the Insurance
          Certificate valid as long as Contractor's legal liability EXISTS IN
          CONNECTION WITH OPERATIONS ACCORDING TO THE AGREEMENT.

          It is Contractor's responsibility to ensure that the insurance
          requirements set forth in APPENDIX D to this Agreement remain in
          effect for the term of this Agreement.

     13.3. Within ten (10) Days of the execution of this Agreement, Contractor
          shall furnish to NICE certificates of insurance evidencing full
          compliance with the insurance requirements as set forth in APPENDIX D
          to this Agreement. Certificates of Insurance shall be kept current
          throughout the entire term of this Agreement.

     13.4. The carrying of any insurance required hereunder shall not be
          interpreted as relieving Contractor of any responsibility and/or
          undertaking to NICE according to the provisions of this Agreement or
          by law. Contractor shall give prompt notice of all losses or claims of
          which Contractor has knowledge which may be in any way related to this
          Agreement and Contractor shall assist and cooperate with any insurance
          company in the adjustment or litigation of all claims arising under
          this Agreement or by law and indemnifiable by Contractor under this
          Agreement or by law.

     13.5. NICE shall include in its property policies a waiver of subrogation
          clause against the Contractor, its directors and any one on its
          behalf, provided that such waiver will not be valid towards a person
          which caused malicious damage.

14.  [Deleted]

15.  FUNDAMENTAL BREACH AND REMEDIES

     15.1. Except as provided in Sections 15.2 and 15.3, any breach by any Party
          of this Agreement which was not remedied within forty-five (45) Days
          from the date of notice, shall be regarded as a fundamental breach.

     15.2. Notwithstanding the aforementioned in Section 15.1, any delay in the
          Due Date and/or Shipment Date, which was not remedied within thirty
          (30) Days from the date of notice for the first delay, and any
          subsequent delay upon notice (i.e. any second delay, even if the first
          one was less then 30 days) shall be regarded as a fundamental breach.

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     15.3. Notwithstanding the aforementioned in Section 15.1, unjust delay in
          payment by NICE exceeding sixty (60) Days from the date of notice for
          the first delay, exceeding seven (7) Days from the date of notice for
          the second delay (i.e. any second delay, even if the first one was
          less then 60 days) and exceeding the date of notice for any subsequent
          delay (i.e. any subsequent delay, even if the second one was less then
          7 days) , shall be regarded as a fundamental breach. Notwithstanding,
          any delay in any payment by NICE shall bear a default interest, as of
          the first Day of delay, to be compounded daily, at the rate applicable
          at Bank Hapoalim B.M. at the relevant time for unauthorized overdrawn
          current accounts.

     15.4. Notwithstanding anything to the contrary contained herein or
          otherwise, Contractor's liability to NICE for any indirect, special,
          incidental, exemplary or consequential damages as a result of any
          claim arising under this Agreement or in connection therewith,
          regardless of whether Contractor has been advised of the possibility
          of such damages, shall not exceed five million US dollars ($5,000,000)
          in the aggregate for all claims, except for infringement of
          Intellectual Property rights for which Contractor is liable under
          Section 12.6. This Section shall not be construed or used in the
          construction of this Agreement as imposing on Contractor any liability
          for which it is not otherwise liable. Further, this Section shall not
          be construed as derogating from any applicable law which cannot be
          changed or waived by contract.

     15.5. Notwithstanding anything to the contrary contained herein, NICE'
          liability to Contractor for any indirect, special, incidental,
          exemplary or consequential damages as a result of any claim arising
          under this Agreement or in connection therewith, regardless of whether
          NICE has been advised of the possibility of such damages, shall not
          exceed five million US dollars ($5,000,000) in the aggregate for all
          claims, except for infringement of Intellectual Property rights for
          which NICE is liable under Section 12.8. This Section shall not be
          construed or used in the construction of this Agreement as imposing on
          NICE any liability for which it is not otherwise liable. Further, this
          Section shall not be construed as derogating from any applicable law
          which cannot be changed or waived by contract.

16.  TERM AND TERMINATION

     16.1. TERM AND TERMINATION. The initial term of this Agreement shall
          commence on the Effective Date and extend for three (3) years
          thereafter ("INITIAL TERM"), with an automatic renewal for an
          indefinite period of time ("EXTENDED TERM"), unless terminated by the
          parties according to Sections 16.2. or 16.3. herein.

     16.2. Notwithstanding the aforesaid in Section 16.1. and any possible
          implication to the contrary herein or as a result of the course of
          conduct of the parties, NICEshall be entitled, at its sole discretion,
          to terminate this Agreement, in whole or in part, at any time during
          the Initial Term or the Extended Term, with or without cause, upon a
          prior written notice of termination to Contractor of not less than
          forty-five (45) Days.

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     16.3. Notwithstanding the aforesaid in Section 16.1. and any possible
          implication to the contrary herein or as a result of the course of
          conduct of the parties, Contractor shall be entitled, at its sole
          discretion, to terminate this Agreement only during the Extended Term,
          with or without cause, upon a prior written notice of termination to
          NICE of not less than six (6) months.

     16.4. Either party shall be entitled to terminate this Agreement, following
          a fundamental breach of this Agreement by the other party.

     16.5. Either party shall be entitled to terminate this Agreement upon the
          other party seeking an order for relief under the bankruptcy laws of
          the State of Israel or similar laws of any other jurisdiction, a
          composition with or assignment for the benefit of creditors, or
          dissolution or liquidation. NICE shall be entitled to terminate this
          Agreement upon the merger or acquisition of all or substantially all
          the business or assets of Contractor (except if within the
          Flextronix's group and provided Contractor remains an Israeli entity).

     16.6. EFFECT OF TERMINATION.

          16.6.1. Upon notice of termination of this Agreement for any reason
               whatsoever, the parties shall execute rapidly and efficiently the
               procedure for termination of the Manufacturing Outsourcing
               Services by Contractor and the transfer of production to NICE as
               set forth hereunder and agreed between the parties, provided that
               Contractor will not be required to incur additional costs for the
               purpose of assisting NICE in the case of termination. During the
               notice period, Contractor will continue performance of the
               Manufacturing Outsourcing Services regarding all PO's received
               according to the Forecast and will, simultaneously, assist NICE
               and cooperate with it in the transfer of the Manufacturing
               Outsourcing Services to NICE or anyone designated by NICE and
               NICE will continue in performing all its obligations hereunder.

          16.6.2. Upon termination of this Agreement for any reason whatsoever,
               without derogating from the generality of the aforesaid, NICE
               shall be entitled to receive from Contractor, at no charge,
               subject to the confidentiality obligations hereunder and
               Contractor's Proprietary Information, all information, know-how,
               samples, documentation and data, in any form or medium, in
               connection with the Manufacturing Outsourcing Services, whether
               prepared by NICE or by Contractor, and all NICE Proprietary
               Information which is in the possession of Contractor or anyone on
               its behalf, including its Permitted Subcontractors. Upon
               termination of this Agreement, Contractor shall return any such
               information to NICE notwithstanding the provisions of Section
               10.6. above.

                                       39
<PAGE>

          16.6.3. Upon termination of this Agreement for any reason whatsoever,
               all Non Generic Equipment and NICE Returned Components as
               detailed in Section 3.12. above, will be immediately returned to
               NICE.

          16.6.4. It is clarified that upon termination, for any reason
               whatsoever, Contractor shall still be obligated to supply
               warranty services according to this Agreement to all Products
               supplied, this for the duration of the Warranty Period for each
               Product and the relevant provisions of this Agreement applying to
               warranty shall survive termination.

     16.7. EFFECT OF TERMINATION. Upon termination of this Agreement, except in
          the event of termination by NICE due to breach by Contractor, NICE
          shall pay Contractor as follows: (i) 100% of the contract price for
          all finished Products in Contractor's possession or which have been
          delivered/being delivered to NICE, which are subject to a Purchase
          Order in accordance with the terms of this Agreement; (ii) 104% of the
          cost in APPENDIX C of all inventory of Permitted Components in
          Contractor's possession, which are not returnable to the vendor /
          supplier according to APPENDIX C or usable for other customers (as
          determined by Contractor in its sole discretion), whether in raw form
          or work in process; (iii) 104% of the cost in APPENDIX C of all
          inventory and inventory on order of Permitted Components which is not
          cancelable according to APPENDIX C; (iv) any vendor cancellation
          charges incurred with respect to inventory of Permitted Components
          accepted for cancellation or return by the vendor, and (v) disassembly
          charges and payments as per Section 3.8 (Cancellation of PO) resulting
          from the cancellation of PO's due to termination, and (vi) 100% of any
          other costs and payments payable by NICE hereunder at the time of
          termination under the specific provisions of this Agreement.
          Contractor will use reasonable commercial efforts to return unused
          inventory and to cancel pending orders for such inventory, and to
          otherwise mitigate the amounts payable by NICE hereunder.

     16.8. Upon termination of this Agreement by NICE due to breach by
          Contractor, NICE shall be obligated to pay Contractor as follows: (i)
          100% of the contract price for all finished Products in Contractor's
          possession for which the Due Date has occurred and which have been
          supplied to NICE' freight forwarder, which are subject to a Purchase
          Order in accordance with the terms of this Agreement; (ii) 100% of the
          cost in APPENDIX C of all inventory of Permitted Components in
          Contractor's possession, which are not returnable to the vendor /
          supplier according to APPENDIX C or usable for other customers (as
          determined by Contractor in its sole discretion); provided however
          that in the event Contractor fails to supply the Products and/or
          Permitted Components to NICE, for any reason whatsoever, within 14
          days after receipt of NICE' request, NICE shall be released from the
          obligation to pay for the Products and /or Permitted Components as
          provided for above. (iii) 100% of the cost in Appendix C of all
          inventory and inventory on order of Permitted Components, which is not
          cancelable according to Appendix C. Contractor will use reasonable
          commercial efforts to return unused inventory and to cancel pending
          orders for such inventory, and to otherwise mitigate the amounts
          payable by NICE hereunder.

                                       40
<PAGE>

     16.9. Neither party shall have any other liability, including payment
          obligations, resulting from the termination for convenience of this
          Agreement.

17.  MISCELLANEOUS.

     17.1. ENTIRE AGREEMENT. This Agreement, Schedules, Exhibits and Appendices
          constitute the entire agreement between the parties in connection with
          its subject matter and supersede all prior communications and
          agreements between the parties relating to its subject matter.
          Notwithstanding anything to the contrary, no documents, procedures,
          methods or policies shall bind the Parties unless they are in writing
          and signed by both parties, except that all the technical
          documentation included in the PDM System may be changed as provided in
          Section A (xxxii). Any change in NICE' procedures or policies, shall
          bind Contractor after it is notified of same, unless the change is
          material, in which case Contractor can object to the change on
          reasonable grounds detailed in writing.

     17.2. AMENDMENT. This Agreement may only be amended, varied or modified by
          the prior agreement in writing of NICE and Contractor. Any such
          amendment, variation or modification shall be binding upon the parties
          and upon their successors and assigns. Work procedures and technical
          documents may be signed by any representative on behalf of each of the
          parties and need not be signed by authorized signatories of the
          parties.

     17.3. ASSIGNMENT. This Agreement shall be binding upon and inure to the
          benefit of the parties and their respective successors and permitted
          assigns. Neither party shall in any way sell, transfer, assign,
          sub-contract or otherwise dispose of any of the rights, privileges,
          duties and obligations granted or imposed upon it under this
          Agreement. However, NICE may, at its discretion, transfer and/or
          assign any of its rights, privileges, duties and obligations granted
          or imposed upon it under this Agreement to any NICE Affiliate,
          provided that NICE remains responsible towards Contractor, jointly and
          severally with the Affiliate, for all of its obligations hereunder so
          assigned, and provided further that the assignee signs this Agreement.

                                       41
<PAGE>

          It is further clarified that NICE may choose, by written notice to
          Contractor, to enable any NICE Affiliate to act on NICE' behalf and in
          its name under this Agreement directly VIS-A-VIS Contractor, without
          relieving NICE as the sole contractual party from responsibility for
          performance of the Agreement. Notwithstanding the foregoing, Upon
          NICE' prior written approval and upon the terms and limitations of
          such approval, Contractor may sub-contract some of its obligations
          ("PERMITTED SUBCONTRACTORS"), provided, however, that Contractor shall
          remain obligated under this Agreement. Contractor shall provide to
          NICE material qualifications and identification details of such
          Permitted Subcontractors. Contractor shall at all times remain fully
          responsible for the performance of all obligations of Contractor
          hereunder, jointly and severally with the Permitted Subcontractors. In
          selecting subcontractors to assist Contractor in the performance of
          this Agreement, Contractor shall comply with all reasonable NICE
          vendor screening requirements which are provided to it, and Contractor
          shall also comply with its own vendor screening requirements.

     17.4. SEVERABILITY. If any provision of this Agreement is held invalid,
          illegal or unenforceable for any reason by any court of competent
          jurisdiction, such provision shall be separable from the remainder of
          the provisions hereof which shall continue in full force and effect as
          if this Agreement had been executed with the invalid provisions
          eliminated.

     17.5. FORCE MAJEURE.

          17.5.1. Neither party shall be liable to the other for any delay in
               performance or failure to perform, in whole or in part, due to
               war or act of war (whether an actual declaration is made or not),
               riot, civil commotion, act of public enemy, fire, flood, or other
               act of God, act of any governmental authority, or similar causes
               beyond the reasonable control of such party which could not have
               been foreseen or prevented. If any event of force majeure occurs,
               the Party affected by such event shall promptly notify the other
               Party of such event in writing and take all reasonable actions to
               avoid the effect of such event.

          17.5.2. Nevertheless, if any event of force majeure occurs for a
               consecutive period of fourteen (14) Days preventing Contractor
               from performing the Manufacturing Outsourcing Services, and
               Contractor has not managed to set up the Manufacturing
               Outsourcing Services at the Backup Site, NICE may, at its
               discretion, elect to perform the Manufacturing Outsourcing
               Services or any part thereof by itself and/or through others,
               without derogating from its other rights and remedies, if
               applicable. In such event: (a) Contractor shall assist NICE by
               putting at its use, at NICE' request, Contractor Personnel who
               are involved in the performance of this Agreement, to the extent
               possible, at a charge to be agreed based on the labor rates in
               APPENDIX C; (b) without derogating from any other obligations of
               NICE hereunder as at such date to purchase Permitted Components,
               NICE shall purchase from Contractor the additional Permitted
               Components in Contractor's inventory, which are required, at
               NICE' discretion, for manufacturing during the force majeure
               period. The price and payment terms for purchase of such
               Permitted Components shall be according to the provisions of
               Section 3.4(A) above, which shall apply mutatis mutandis.

                                       42
<PAGE>

          17.5.3. If the event of force majeure exists for more than 90 days,
               each party shall have the right to terminate this Agreement and
               the provisions of Sections 16.2. and 16.3. regarding the notice
               period required shall apply mutatis mutandis, and thereafter
               Section 16 regarding effects of termination shall apply.

     17.6. RELATIONSHIP. NICE and Contractor acknowledge and agree that this
          Agreement shall not constitute, create or give effect to a joint
          venture, pooling arrangement, principal/agency relationship,
          partnership relationship or formal business organization of any kind
          and neither Contractor and/or NICE shall have the right to bind the
          other without the other's express prior written consent. Contractor
          will render the Manufacturing Outsourcing Services as an independent
          contractor and no employee - employer relationship shall exist between
          Contractor and/or the Personnel and/or anyone on its behalf and NICE.

     17.7. MANAGEMENT CHANGES. Contractor shall notify NICE immediately upon the
          occurrence of any material change in the conduct of business of
          Contractor or in the composition of its management, which has a
          material adverse affect on Contractor's ability to perform this
          Agreement.

     17.8. WAIVER. The failure of either party to insist upon strict performance
          of any provision of this Agreement, or the failure of either party to
          exercise any right or remedy to which it is entitled hereunder, shall
          not constitute a waiver thereof and shall not cause a diminution of
          the obligations established by this Agreement. A waiver of any default
          shall not constitute a waiver of any subsequent default. No waiver of
          any of the provisions of this Agreement shall be effective unless it
          is expressly stated to be a waiver and communicated to the other party
          in writing in accordance with the provisions of this Agreement.

     17.9. DISPUTE RESOLUTION. Any dispute arising out of or relating to this
          Agreement or the breach, termination or validity thereof shall be
          settled in accordance with one of the following procedures. Contractor
          and NICE shall use the procedures in the following order of priority.

                                       43
<PAGE>

          17.9.1. In the event of any dispute, controversy or claim of any kind
               or nature arising under or in connection with this Agreement
               (including but not limited to disputes as to the creation,
               validity, interpretation, breach or termination of this
               Agreement) (a "DISPUTE"), then upon the written notice of either
               Party, the Dispute will be submitted to the project manager on
               behalf of each party to be escalated, in case the parties are
               unable to resolve such Dispute, to the parties C.E.O.'s

          17.9.2. Any dispute that the parties are unable to resolve pursuant to
               Section 17.9.1. within 30 Days, will be submitted exclusively to
               the competent courts in the Tel-Aviv-Jaffa District in Israel.

          17.9.3. Without derogating from rights of termination as detailed in
               this Agreement, it is clarified that Contractor will continue to
               provide the Manufacturing Outsourcing Services and NICE shall
               continue to perform its obligations hereunder during any
               litigation, mediation or legal proceedings commenced pursuant to
               this Section 17.9. above and the existence of a Dispute shall not
               enable Contractor to stop work or services or otherwise not
               timely perform its obligations or enable NICE to stop payments or
               otherwise not timely perform its obligations.

          17.9.4. The foregoing shall not affect the right of the parties to
               seek injunctions before the competent Court.

     17.10. Wherever in this Agreement it is provided that the Parties agree to
          negotiate/review/change any term hereof (including prices), the
          parties will usetheir best commercial efforts and negotiate in good
          faith in order to reach such agreement. If the parties fail to agree,
          no change will be made to the last agreed terms and they shall
          continue to apply, except as otherwise specifically and explicitly
          provided herein, and except that the provisions of Section 8.2. and
          all its subsections will apply with regard to details included in
          APPENDIX C.

     17.11. LAW AND JURISDICTION. This Agreement shall be governed by and
          construed in accordance with the laws of the state of Israel, without
          giving effect to choice of law rules.

                                       44
<PAGE>

     17.12. SCHEDULES AND APPENDICES. Each Schedule and Appendix hereto is
          incorporated herein by this reference. The parties may amend any
          Schedule and Appendix from time-to-time by entering into a separate
          written agreement, referencing such Schedule and Appendix and
          specifying the amendment thereto, signed by an authorized
          representative of each of the parties.

     17.13. SET-OFF. NICE shall only be entitled to setoff any amount due to
          Contractor against any amount due from Contractor to NICE, if the
          setoff amount is: (i) due according to this Agreement and is subject
          to an invoice lawfully issued hereunder; or (ii) liquidated damages
          according to this Agreement. In the event of setoff, Contractor shall
          receive, at the same time, a written notice signed by vice president
          operations of NICE detailing the setoff. Contractor shall not be
          entitled to setoff any amount due to NICE from Contractor hereunder
          against any amount due from NICE to Contractor according to this
          Agreement. The setoff provisions in this Agreement are in lieu of any
          setoff rights under any applicable law but shall not be construed as
          derogating from any other right or remedy.

     17.14. LIEN. Each party hereby waives any right of lien it may have under
          applicable law.

     17.15. COMMUNICATION AND NOTICES. Except as otherwise expressly provided in
          this Agreement, no communication from one party to the other shall
          have any validity under this Agreement unless made in writing by or on
          behalf of an authorized official of Contractor or, as the case may be,
          by or on behalf of an authorized official of NICE. Each party shall,
          from time to time, provide the other with a list of personnel
          designated as "authorized officials" for the purposes of this Section
          17.15. Any notice or other communication which either party hereto is
          required or authorized by this Agreement to give or make to the other
          shall be given or made either by registered mail, or by courier or by
          facsimile transmission confirmed by electronic confirmation, addressed
          to the other party to the address referred to in the preamble. Notices
          shall be deemed delivered within seven (7) Days of dispatch of the
          notice by registered mail, or upon delivery by courier, or one
          Business Day after sent if sent by facsimile transmission.


IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written:

          /s/                                              /s/
- ------------------------                        ------------------------
    NICE SYSTEMS LTD.                           FLEXTRONICS ISRAEL LTD.

                                       45
<PAGE>


    NICE SYSTEMS LTD.                           FLEXTRONICS ISRAEL LTD.



(Nice-Nice Flex Master Manufacturing Outsourcing Agreement Final)


                                       46

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>7
<FILENAME>tex4_6-29996.txt
<DESCRIPTION>EX-4.6
<TEXT>

                             Dated 5th November 2001


                        THALES CONTACT SOLUTIONS LIMITED      (1)

                           INSTEM TECHNOLOGIES LIMITED        (2)


                             ----------------------
                                  MANUFACTURING
                                    AGREEMENT
                             ----------------------


                                     [LOGO]
                              ADDLESHAW BOOTH & CO
<PAGE>

                                    CONTENTS

Clause                               Heading                                Page

1    Definitions and Interpretation .......................................... 1
2    Term .................................................................... 5
3    Appointment ............................................................. 5
4    Grant of rights and use of assets ....................................... 6
5    Technical Assistance .................................................... 6
6    Quality ................................................................. 6
7    Forecasts and Purchase Orders ........................................... 8
8    Delivery ................................................................ 9
9    Passing of property and risk ........................................... 10
10   Payment ................................................................ 10
11   Verification of the Established Manufacturing Costs .................... 10
12   Prices for Products in the first Contract Year ......................... 12
13   Prices for Products in subsequent Contract Years ....................... 12
14   Minimum payments to Instem ............................................. 13
15   Payments by Instem to Thales ........................................... 14
16   Thales' undertakings ................................................... 14
17   Improvements ........................................................... 15
18   Intellectual Property .................................................. 15
19   Service, repair and delivery ........................................... 15
20   Confidential information ............................................... 16
21   Termination ............................................................ 17
22   Consequences of termination ............................................ 17
23   Force majeure .......................................................... 17
24   Limitation on liability ................................................ 18
25   Dispute resolution ..................................................... 18
26   Waiver ................................................................. 18
27   Notices ................................................................ 19
28   Scope of agreement ..................................................... 19
29   Assignment ............................................................. 19
30   Relationship between parties ........................................... 20
31   The Contracts (Rights of Third Parties) Act 1999 ....................... 20
32   Severance .............................................................. 20
33   Entire agreement ....................................................... 20
34   Applicable law and jurisdiction ........................................ 20

Schedule

1    Initial Products ....................................................... 21
2    Existing Purchase Orders ............................................... 36
3    Final Test Specification ............................................... 50
4    Service and Repair Facility ............................................ 51
5    Estimate of the Established Manufacturing Costs ........................ 53
6    Estimated Prices ....................................................... 59
7    Service Costs .......................................................... 71
8    Minimum Lead Times for Products ........................................ 74
9    Manufacturing Practices and Procedures ................................. 75
<PAGE>

This Agreement is made on          5th November                             2001

Between

(1)  THALES CONTACT SOLUTIONS LIMITED a company incorporated in England with
     number 560700 whose registered office is at Western Road, Bracknell,
     Berkshire RG12 1RG ("Thales"); and

(2)  INSTEM TECHNOLOGIES LIMITED a company incorporated in England with number
     3548213 whose registered office is at Unit 6, Rutherford Court,
     Staffordshire Technology Park, Beaconside, Stafford ST18 0AR ("Instem")

Whereas

(A)  Thales and Instem have today entered into an agreement (the "Asset Sale
     Agreement") for the sale and purchase of the manufacturing business carried
     on by Thales (the "Business").

(B)  Notwithstanding the sale of the Business pursuant to the Asset Sale
     Agreement, Thales has an ongoing requirement for certain products to be
     manufactured by the Business.

(C)  Accordingly, Thales has agreed to appoint Instem as its sole and exclusive
     manufacturer and supplier of such products on the terms and conditions of
     this Agreement.

It is agreed as follows

1    Definitions and Interpretation

1.1  (a)  In this Agreement:

          "Actual Level of Business" means, in respect of any Contract Year, the
          aggregate invoice value of all Products which are the subject of
          Purchase Orders submitted by Thales to Instem pursuant to this
          Agreement for delivery during that Contract Year, but excluding
          amounts to be invoiced pursuant to clause 19, and excluding VAT and
          excluding the amount of any Manufacturing Management Charge

          "Business Day" means a day which is not a Saturday or Sunday or a bank
          or other public holiday in England

          "Commencement Date" means the date of this Agreement

          "Competing Products" means any products which are considered by users
          as equivalent to the Products in view of their characteristics and
          price and intended use

          "Contract Year" means a period of twelve successive months during the
          Life of this Agreement commencing on the Commencement Date or an
          anniversary of that date

          "Established Manufacturing Costs" means the aggregate amount of the
          manufacturing costs of the Business (excluding costs of components and
          materials), the service and repair costs and the delivery service
          costs which, as


                                       1
<PAGE>

          at the Commencement Date, the Parties anticipate will be incurred by
          Instem during the first Contract Year, an estimate of which is set out
          at Schedule 5

          "Estimated Price" means, in respect of any Product, the estimated
          price to be charged by Instem to Thales for the manufacture of that
          Product during the first Contract Year, details of which are set out
          at Schedule 6 and which are based on the Established Manufacturing
          Costs plus the costs of components and materials for that Product

          "Existing Purchase Orders" means the purchase orders submitted to
          Instem by Thales in respect of Products which are already in the
          course of manufacture as at the Commencement Date, details of which
          are set out in Schedule 2

          "Final Test Specification" means, in relation to any Product, the
          final technical testing specification for such Product as agreed
          between the Parties and details of which are set out in Schedule 3, as
          from time to time as amended, modified or updated from time to time by
          agreement between the Parties in writing

          "Force Majeure" means any circumstances outside a party's reasonable
          control, including, without limitation, Act of God, industrial
          disputes (other than any industrial dispute occurring at the Property
          by reason of any action taken by Instem after the Commencement Date),
          fire, flood, lightning, war revolution act of terrorism, riot, civil
          commotion, failure of power supplies shortage of fuel, transport,
          equipment, raw materials or other goods and services

          "Forecast Meeting" means a meeting held by the Parties pursuant to
          clause 7.1 of this Agreement, the first of which will be held on or
          before 13 November 2001

          "Independent Accountant" means such firm of independent chartered
          accountants as Instem and Thales may agree within 10 Business Days of
          a request by either of them or, failing such agreement within such
          time, as the President for the time being of the Institute of
          Chartered Accountants in England and Wales may nominate on the
          application of Instem or Thales

          "Initial Know-How" means all information in the possession and control
          of Thales which is not generally known and which relates to the
          development and manufacture of the Initial Products, including,
          without prejudice to the generality of the foregoing, information of
          manufacturing and formulae and assembly processes and techniques,
          designs, drawings, diagrams, component and material specifications

          "Initial Level of Business" means the sum of (pound)18,132,018 (being
          the aggregate invoice value of all Products which the Parties expect
          to be the subject of Purchase Orders submitted by Thales to Instem
          pursuant to this Agreement for delivery during the first Contract
          Year, excluding amounts to be invoiced pursuant to clause 19 and
          excluding VAT and excluding any Manufacturing Management Charge) and
          which is taken into account in the calculation of the Established
          Manufacturing Cost set out in Schedule 5


                                       2
<PAGE>


          "Initial Products" means Products of the types currently being
          manufactured by the Business as at the Commencement Date

          "Intellectual Property" means any and all trade or brand names,
          computer programs, copyright design copyright, legal, know-how
          confidential information, patents, registered designs, trade marks and
          service marks (whether registered or not), applications for the
          protection of any of the foregoing and rights to apply for any of the
          foregoing

          "Intellectual Property Rights" means any and all rights in respect of
          any Intellectual Property

          "Know-How" means all information in the possession and control of
          Thales which is not generally known and which relates to the
          development and manufacture of the Products, including, without
          prejudice to the generality of the foregoing, information on
          manufacturing and formulae and assembly processes and techniques,
          designs, drawings, diagrams, component and material specifications,
          together with all improvements and new applications thereto from time
          to time devised by or on behalf of Thales

          "Life of this Agreement" means the period commencing on the
          Commencement Date and expiring on the date upon which this Agreement
          terminates in accordance with this Agreement

          "Loaded Hours" means, in respect of any Contract Year, the total
          number of hours spent by Instem employees in the manufacture of
          Products delivered to Thales in that Contract Year

          "Loan" means the loan outstanding from Instem to Thales from time to
          time pursuant to the Loan Agreement

          "Loan Agreement" means the loan agreement entered into by Instem and
          Thales on the date of this Agreement, in the agreed form

          "Manufacturing Management Charge" means in relation to a cost, 3 per
          cent of that cost

          "Minimum Lead Time" means, in respect of any Product, the minimum
          period between receipt by Instem of a Purchase Order for that Product
          and the date on which that Product may be delivered to Thales, as
          specified in Schedule 8, or as agreed in writing between the Parties

          "Net Sales Profit" means the net profit before interest and taxation
          generated by Instem in any year from the manufacture and sale of
          Products and the provision of Services pursuant to this Agreement

          "New Products" means any new Products required by the Thales Business
          to be manufactured by Instem from time to time whether to replace the
          Initial Products or otherwise, together with any improvements or
          modifications to the Initial Products or the Products

          "Parties" means the parties to this Agreement


                                       3
<PAGE>

          "Products" means all and any products which are required by the Thales
          Business for onward sale or supply to its customers from time to time
          (and including, for the avoidance of doubt, the Initial Products and
          the New Products)

          "Property" means the Business' premises at Hardley Industrial Estate,
          Hythe or such other property from which the Business operates from
          time to time

          "Purchase Order" means an order placed by Thales for the supply of
          Products

          "Received Amount" means, in respect of any Contract Year, the
          aggregate value of all invoices submitted by Instem to Thales pursuant
          to this Agreement, together with the aggregate value of all additional
          invoices which would have been submitted by Instem to Thales had all
          of the Products which were the subject of valid Purchase Orders
          specifying delivery in that Contract Year been delivered on the
          required date, but excluding in each case:

          (a)  the cost of all materials and components comprised in the
               Products which are the subject of such invoices and

          (b)  VAT and

          (c)  any Manufacturing Management Charge,

          and subject to any adjustment thereto agreed in writing between the
          Parties

          "Services" means the services to be provided by Instem to Thales
          pursuant to clause 19


          "Service Costs" means the costs for the Service Facility as agreed
          between the Parties, particulars of which are set out in Schedule 7,
          as amended, modified or updated from time to time in accordance with
          clause 19.3

          "Service Facility" means the service and repair facility to be
          established by Instem pursuant to clause 19

          "Thales Business" means the business of the provision of record and
          replay solutions carried on by Thales from time to time

          "Tools and Test Equipment" has the meaning given in the Asset Sale
          Agreement

          "VAT" means Value Added Tax

     (b)  reference to a document as "in the agreed form" means that document in
          a form agreed and a copy of which has been initialled for the purposes
          of identification by or on behalf of the parties hereto;

     (c)  the masculine gender includes the feminine and neuter and the singular
          number includes the plural and vice versa;

     (d)  references to clauses and schedules are references to clauses of and
          schedules to this Agreement;


                                       4
<PAGE>

     (e)  words and phrases the definitions of which are contained or referred
          to in part XXVI of the Companies Act 1985 shall be construed as having
          the meaning thereby attributed to them;

     (f)  "person" includes any individual, company, corporation, firm,
          partnership, joint venture, association, organisation or trust (in
          each case whether or not having separate legal personality) and
          references to any of the same shall indicate a reference to the
          others;

     (g)  a person shall be deemed to be "associated with" another person or an
          "associated person" of that other person if such person is an
          associate of the other person within the meaning of section 435
          Insolvency Act 1986;

     (h)  references in this Agreement to statutory provisions shall be
          construed as references to those provisions as respectively replaced
          amended or re-enacted (whether before or after the date hereof) from
          time to time and shall include any provisions of which they are
          re-enactments (whether with or without modification) and any
          subordinate legislation made under such provisions save to the extent
          that such replacements, amendments or re-enactments taking effect
          after the date hereof would impose any greater obligations or
          liabilities on or reduce the benefit to any party hereunder.

1.2  The schedules form part of and are incorporated in this Agreement and shall
     be of full force and effect.

1.3  Headings and sub-headings are included for ease of reference only and shall
     not affect the interpretation of this Agreement.

2    Term

2.1  This Agreement shall commence on the Commencement Date and subject to the
     provisions for early termination set out below shall continue for a period
     of 5 years and thereafter unless and until either Party shall give to the
     other 12 calendar months' written notice of its intention to terminate,
     such notice to expire on the fifth anniversary of the Commencement Date or
     at any time thereafter.

3    Appointment

3.1  Thales hereby appoints Instem as Thales' sole and exclusive manufacturer
     and supplier of Products upon and subject to the terms and conditions set
     out in this Agreement.

3.2  Thales shall (until termination of this Agreement in accordance with its
     terms):

     (a)  purchase all of its Products from Instem;

     (b)  not purchase Competing Products from anyone other than Instem; and

     (c)  not manufacture the Products itself.

3.3  Instem agrees to supply the Products to Thales in accordance with the terms
     of this Agreement.

3.4  Instem agrees that those Initial Products which are already in the course
     of being manufactured as at the Commencement Date, and those Initial
     Products which are the


                                       5
<PAGE>

     subject of a Purchase Order submitted by Thales within three months after
     the Commencement Date, shall be supplied by Instem to Thales in accordance
     with the manufacturing practices, procedures and workmanship standards
     prevailing in the Business during the period of six months preceding the
     Commencement Date, and details of which are set out in Schedule 9.

4    Grant of rights and use of assets

4.1  Thales hereby grants to Instem the exclusive right to use the Know-how and
     the Initial Know-how.

4.2  Thales shall, during the Life of this Agreement, make the Tools and Test
     Equipment available for use by Instem exclusively for the purposes of the
     Business, at no cost to Instem. The Tools and Test Equipment shall be
     returned by Instem to Thales following the termination of this Agreement.

5    Technical Assistance

5.1  On the execution of this Agreement Thales shall forthwith disclose the
     Initial Know-How to Instem and to this end Thales shall provide Instem
     with copies of documents and any other media which record or otherwise
     relate to the Initial Know-How as necessary.

5.2  Thales shall promptly provide to Instem full written details of any
     additions developments, modification or updates to the Initial Know-How and
     of any Know-How other than the Initial Know-How that arises from time to
     time.

5.3  Thales hereby agrees that, for a period of six months commencing on the
     Commencement Date, at Instem's reasonable request, it will make available
     at the Property suitable members of its staff to train a reasonable number
     of Instem employees in:

     (a)  the processes involved in the manufacture of the Products;

     (b)  the use of the Know-How; and

     (c)  the exploitation of the Patents.

5.4  Thales hereby agrees that it shall, from time to time, at Instem's
     reasonable request provide Instem with such information, technical
     assistance and support on such subjects (including updates on Initial
     Products and training on New Products) as Instem may reasonably require
     (including, for the avoidance of doubt, making available at the Property
     suitable members of its engineering staff).

6    Quality

6.1  Instem agrees that it shall manufacture each Product so as to conform with:

     (a)  the configuration specified by Thales in the Purchase Order relating
          to that Product; and

     (b)  its Final Test Specification.


                                       6
<PAGE>

6.2  Thales shall be entitled to conduct sample tests of Products, on the
     following terms:

     (a)  Thales shall give not less than 24 hours notice of its intention to
          conduct such a test, which will take place at the Property, during
          normal working hours;

     (b)  a maximum of 20 per cent of the Products manufactured in a given week
          may be subjected to testing;

     (c)  the Products tested shall be those which have received a final test by
          Instem and are awaiting despatch;

     (d)  any test failure shall be categorised as one of the following:

          (i)   Grade A Failure - Product fails to function;

          (ii)  Grade B Failure - Product functions but is not to required build
                standard or current specification;

          (iii) Grade C Failure - Product bears cosmetic defects only but
                otherwise functions satisfactorily.

6.3  If Thales identifies any Product as a Grade A Failure, Thales may require
     Instem to carry out repeat testing on all Products of the same Product type
     which are awaiting despatch having previously passed final test. The scope
     of such testing shall be determined by Thales. Pending the outcome of any
     such testing, Thales may issue a "Hold Order" in respect of that Product
     type, which shall suspend all deliveries of that Product type pending
     resolution of the fault.

6.4  If the outcome of testing undertaken pursuant to clause 6.3 is that a Grade
     A Failure was due to a manufacturing defect, Thales may require additional
     testing to be performed in order to establish, to the reasonable
     satisfaction of Thales, that such defect has been corrected. Any Products
     delivered late as a consequence of the investigations into such a Grade A
     Failure shall be counted for the purposes of clause 8.4.

6.5  If the outcome of testing undertaken pursuant to clause 6.3 is that a Grade
     A Failure was not due to a manufacturing defect, the cost of investigation
     and remedial work required to resolve the failure shall be borne by Thales,
     and Products withheld from delivery as a consequence of such failure shall
     not be counted as late deliveries for the purpose of clause 8.4.

6.6  If Thales identifies a Grade A failure in respect of any Product, Thales
     may require Instem to undertake a programme of corrective action specified
     by Thales, in a timescale agreed between the Parties, in order to avoid
     that failure recurring. If that same Grade A failure is repeated, after the
     time has passed within which Instem was required to implement corrective
     action, then Thales shall be entitled to require Instem, by notice in
     writing, to implement such corrective action by a date specified by Thales
     in such notice (but which shall allow Instem a reasonable period to do so).
     If Instem thereafter fails to act in accordance with such notice, Thales
     may terminate Instem's exclusive appointment under this Agreement in
     respect of the Product in which the Grade A failure occurred.

6.7  If, having terminated Instem's exclusive appointment in respect of a
     Product pursuant to clause 6.6, Thales ceases to order that Product to be
     manufactured by Instem


                                       7
<PAGE>

     Thales may require Instem to deliver to Thales such of the items of Tools
     and Test Equipment as relate to the manufacture of that Product and no
     other Products.

7    Forecasts and Purchase Orders

7.1  By the tenth Business Day of each calendar month, Thales shall provide
     Instem with its estimate in writing of its anticipated requirements for
     each type of Product for each of the following four calendar months (a
     "Forecast Period"). Within 10 Business Days of receipt of this estimate by
     Instem, representatives of the Parties shall meet to discuss and endeavour
     to agree the estimate (each agreed estimate being hereinafter referred to
     as a "Forecast").

7.2  If Thales shall advise Instem in writing of a variation to a Forecast (a
     "Revised Forecast") Instem shall use its reasonable endeavours to comply
     with the Revised Forecast, provided always that Instem gives no guarantee
     or undertaking as to its ability to comply with the Revised Forecast and
     shall accept no liability for any loss resulting to Thales from late or
     non-delivery of the Products the subject of the Revised Forecast.

7.3  Subject to clause 7.4, Thales may place Purchase Orders with Instem, from
     time to time, which shall constitute firm orders by Thales to Instem for
     the manufacture of the Products specified therein, and which shall specify
     Thales s required date for delivery of such Products, which shall not,
     unless Instem agrees otherwise in respect of any particular Purchaser
     Order, be earlier than the date of expiry of the Minimum Lead Time for the
     relevant Product(s).

7.4  Thales's ability to place Purchase Orders shall, unless Instem agrees
     otherwise in respect of any particular Purchaser Order, be limited as
     follows:

     (a)  the maximum volume of any Product type which may be ordered by Thales
          for delivery in any month shall not exceed 120% (one hundred and
          twenty per cent) of the requirement for that Product type specified in
          the most recent Forecast for that month;

     (b)  the maximum aggregate volume of any Product type which may be ordered
          by Thales for delivery in the second, third and fourth months of any
          Forecast Period may not exceed its total requirements for that Product
          type in the preceding Forecast, less the number of Products of that
          type delivered by Instem in the first month of the current Forecast
          Period; and

     (c)  the maximum aggregate volume of any Product type which may be ordered
          by Thales for delivery in all months of any Forecast Period may not
          exceed its total requirements for that Product type specified in the
          current Forecast.

7.5  Instem shall be entitled to purchase or commit to purchase such stock
     and/or materials and to generate such work-in-progress, as the Business may
     require in order to enable Instem to satisfy each Forecast. If Instem
     purchases or commits to purchase stock and/or materials which are or will
     become obsolete because either:

     (a)  a Revised Forecast involves a reduction in Thales' requirements for
          Products from those stated in the original Forecast; or


                                       8
<PAGE>

     (b)  Purchase Orders placed by Thales in any period do not order the volume
          of Products reflected in the Forecast for that period (whether or not
          Thales has advised Instem of a Revised Forecast),

     then Instem may notify Thales that such items are or are likely to become
     obsolete. Thales may purchase any such items of stock from Instem, on
     payment to Instem of an amount equal to the cost to Instem of purchasing
     the relevant items. If Thales does not purchase such items, and Instem is
     required to write off the whole or any part of the value of such items in
     its books, then Thales shall pay to Instem an amount equal to the value so
     written off. Any such payment may, if the parties so agree, be satisfied by
     a partial release by Thales of Instem's liability to repay the Loan
     pursuant to the Loan Agreement. Unless otherwise agreed between the
     Parties, an item of stock and/or materials shall be deemed to be obsolete
     if it has not been used within 12 months after the date on which it was
     purchased, save for Last Buy Items to which the utilisation periods set out
     in Schedule 6 of the Asset Sale Agreement shall apply.

8    Delivery

8.1  Instem shall supply the Products (suitably packed) ex works the Property.
     The price to be paid for the Products pursuant to clause 12 shall be
     exclusive of the cost of pallets, packing cases, drums or other articles
     used for packing the Products which Thales shall be additionally liable to
     pay.

8.2  All Products are to be accompanied by a detailed advice note stating the
     purchase order number and giving full particulars of the Products supplied.

8.3  Instem shall use its reasonable endeavours to supply the Products by the
     date (if any) specified by Thales when placing the relevant Purchase Order
     pursuant to clause 7.3. Instem shall notify Thales as soon as reasonably
     practicable if Instem has reason to believe that there may be a delay in
     the delivery of the Products and shall provide Thales with reasonable
     details of the cause, and likely duration, of such delay.

8.4  If any Products ordered by Thales for delivery on any date falling after 1
     January 2002 are delivered by Instem later than the fifth Business Day
     after the date specified therefor by Thales in the relevant Purchase Order,
     then Instem will be liable to make payment to Thales on the following
     terms:

     (a)  for every complete period of five Business Days by which a Product is
          delivered late, up to a maximum of twenty Business Days, Instem will
          be liable to pay Thales 0.25% (one quarter of one per cent) of the
          invoice value (excluding VAT) of the Products which are delivered
          late;

     (b)  Instem shall not be liable to make payment to Thales pursuant to this
          clause 8.4 to the extent that the late delivery of Products is
          attributable to an event of Force Majeure;

     (c)  Instem shall only be liable to make payment to Thales pursuant to this
          clause 8.4 if, in respect of any quarter of any Contract Year, 30%
          (thirty per cent) or more of the Products due to be delivered to
          Thales during that quarter were delivered more than five Business Days
          after the due date for delivery;

     (d)  any amounts due to Thales pursuant to this clause 8.4 shall be
          calculated and aggregated for each successive quarter of each Contract
          Year and shall be paid by Instem within five Business Days after
          demand therefor made by Thales.


                                       9
<PAGE>

8.5  Instem shall, without prejudice to clause 23.1, be entitled to delay
     delivery or to reduce the amount of Products delivered if and to the extent
     that it is prevented from or hindered in or delayed in manufacturing,
     obtaining or delivering the Products by normal means due to Force Majeure.

8.6  If for any reason Thales is unable to collect the Products at the time when
     the Products are due and ready for delivery, Instem shall, if its storage
     facilities permit store the Products and take reasonable steps to prevent
     damage to them until their actual collection by Thales and Thales shall be
     liable to Instem for the reasonable cost [(including insurance)] of Instem
     so doing.

9    Passing of property and risk

9.1  Title to and risk of damage to or loss of the Products shall pass to Thales
     on delivery of the Products pursuant to clause 8.1 and Thales shall be
     solely responsible for their custody and maintenance.

9.2  Pending payment of the full purchase price of the Products to Instem,
     Thales shall at all times keep the Products comprehensively insured against
     loss or damage by accident, fire, theft and other risks which it is
     commercially usual to insure against in an amount at least equal to the
     balance of the purchase price for the same from time to time remaining
     outstanding.

10   Payment

10.1 Instem shall submit to Thales a VAT invoice for all amounts payable by
     Thales to Instem pursuant to this Agreement, such invoices to include
     applicable VAT on the amounts due, at the prevailing VAT rate.

10.2 Thales agrees to pay the amount of any valid Instem invoice (without making
     any deduction or set off) by BACS or other electronic funds transfer in
     cleared funds for value on the 27th day of the calendar month following the
     month of invoice.

10.3 Payment of any monies due to Instem shall not be withheld by Thales if the
     delivery of the Products shall be subject to refusal, detention or
     confiscation by reason of the lack of proper import licence or failure to
     pay customs duties or any other default or omission of Thales.

10.4 Without prejudice to any other rights or remedies available to Instem when
     payment of any invoice is delayed, interest at the rate of 3 per cent per
     annum above the base lending rate from time to time of Bank of Scotland (to
     be calculated on a daily basis) shall be added on the amount of such
     invoice for the period of the delay.

11   Verification of the Established Manufacturing Costs

11.1 During the first Contract Year, Instem may request that the whole or any
     part of the Established Manufacturing Costs shall be re-calculated, in
     accordance with the provisions of clauses 11.2 to 11.9.


11.2 Instem may prepare and deliver to Thales a revised statement of the
     manufacturing costs which it anticipates would have been incurred during
     the first Contract Year which schedule shall be in substantially the same
     form as 0 to this Agreement ("Schedule of Revised Costs").


                                       10
<PAGE>

11.3 A Schedule of Revised Costs may be delivered to Thales by Instem at any
     time after 30 June 2002 and before 1 August 2002, provided that if a
     Schedule of Revised Costs shows costs in aggregate which exceed the
     aggregate costs stated in Schedule 5 by more than 5 per cent, Instem may
     deliver such Schedule of Revised Costs to Thales at any time before 1
     August 2002.

11.4 Instem shall accord Thales and its authorised representatives (at its own
     reasonable cost) such assistance and facilities during normal working hours
     (including access to its books and records) as Thales may reasonably
     request for the purpose of reviewing the Schedule of Revised Costs and
     Thales shall be entitled to make such enquiries as it considers reasonably
     appropriate and by its authorised representatives to have access to the
     accounting records and sale and purchase invoices of the Business for the
     purposes of satisfying itself as to the matters in the Schedule 5 of
     Revised Costs.

11.5 As soon as reasonably practicable after delivery of the Schedule of Revised
     Costs to Thales pursuant to clause 11.1, Thales shall notify Instem in
     writing whether it agrees with the Schedule of Revised Costs.

11.6 If Thales notifies Instem that it agrees with the Schedule of Revised
     Costs, the costs specified in the Schedule of Revised Costs shall become
     the "Established Manufacturing Costs" for all purposes of this Agreement.

11.7 If Thales notifies Instem pursuant to clause 11.5 that it does not agree
     with the Schedule of Revised Costs, the Parties shall negotiate in good
     faith in a bona fide attempt to agree the Schedule of Revised Costs and,
     upon agreement of the same, the costs specified therein shall become the
     "Established Manufacturing Costs" for all purposes of this Agreement.

11.8 If after 30 Business Days from the date upon which Instem delivered the
     Schedule of Revised Costs to Thales there exists any aspect of the Schedule
     of Revised Costs which Instem and Thales have not agreed (a "Disputed
     Item") then:

     (a)  either Thales or Instem may require that any Disputed Item be referred
          to the decision of the Independent Accountant;

     (b)  the Independent Accountant shall act as an expert and not as an
          arbitrator and his decision in relation to any Disputed Item shall be
          final and binding on Thales and Instem in the absence of manifest
          error;

     (c)  all of the costs of the Independent Accountant shall be shared equally
          Thales and Instem unless the Independent Accountant decides otherwise;

     (d)  Thales and Instem shall each procure that the Independent Accountant
          is afforded all facilities and access to personnel, premises, papers,
          accounts records and such other documents as may reasonably be
          required by him in order to reach his decision;

     (e)  Thales and Instem and/or their respective professional advisers shall
          each be entitled to make written submissions to the Independent
          Accountant in relation to any Disputed Item referred to him, provided
          that a copy of any such submission shall be supplied simultaneously to
          the other party; and

     (f)  Thales and Instem shall each use all reasonable endeavours to procure
          that the Independent Accountant issues his determination within 30
          Business Days of


                                       11
<PAGE>

          the initial reference to him under this clause 11.8 and shall
          accordingly co-operate with the Independent Accountant and with each
          other in agreeing and complying with any procedural requirements and
          any timetable suggested by the Independent Accountant or, if
          reasonable, by the other party.

11.9 Within 5 Business Days of any written determination being made by the
     Independent Accountant in relation to any Disputed Item, Instem and Thales
     shall jointly incorporate into the Schedule of Revised Costs the matters
     determined by the Independent Accountant (together with any adjustments
     which may have separately been agreed in writing between Instem and Thales
     and any other adjustments which arise as a direct consequence of the
     matters determined by the Independent Accountant) and the costs specified
     in the Schedule of Revised Costs, as amended shall become the "Established
     Manufacturing Costs" for all purposes of this Agreement.

12   Prices for Products in the first Contract Year

12.1 During the first Contract Year, the price to be charged for the manufacture
     and supply of any Product shall be the Estimated Price of that Product,
     plus the Manufacturing Management Charge applicable to that price.

12.2 If, by the operation of clause 11 of this Agreement, the amount of the
     Established Manufacturing Costs is re-calculated and is an amount greater
     (or less) than the amount thereof set out in Schedule 5, Thales shall pay
     to Instem (or Instem shall pay to Thales) an amount equal to the excess (or
     the deficit), plus the Manufacturing Management Charge applicable to the
     amount of that sum, such payment to be made following delivery of an
     invoice therefor to the appropriate party.

12.3 During the first Contract Year, if Instem reasonably believes that the
     Estimated Price of any Product did not reflect any aspect of the actual
     cost of manufacture of that Product as at the Commencement Date, then
     Instem may propose a revised price for that Product and the Parties shall
     negotiate in good faith with a view to agreeing such revised price.

12.4 A revised price agreed pursuant to clause 12.3 shall thereupon become the
     Estimated Price for the relevant Product for the purposes of clause 12.1
     and Instem shall be entitled to deliver an invoice to Thales in respect of
     the amount of the difference between the initial Estimated Price and the
     revised Estimated price agreed pursuant to clause 12.3, for all relevant
     Products delivered to Thales in the period from the Commencement Date to
     the date upon which the revised Estimated Price takes effect.

13   Prices for Products in subsequent Contract Years

13.1 At least 3 months prior to the commencement of the second Contract Year and
     each subsequent Contract Year, Thales shall provide to Instem a written
     estimate of Thales estimated requirements for Products to be manufactured
     during that Contract Year including the estimated volume required of each
     Product type.

13.2 Following receipt of Thales' estimate pursuant to clause 13.1, Instem shall
     provide to Thales a written statement of Instem's proposed price for the
     following Contract Year for each Product type included in Thales' estimate.

13.3 The proposed prices for the second and third Contract Years shall be based
     on the prices charged for Products in the first Contract Year. The proposed
     prices for the


                                       12
<PAGE>

     fourth Contract Year and all subsequent Contract Years shall be based on
     the prices charged for Products in the preceding Contract Year. If, for any
     Contract Year Instem proposes an increase in the price of any Product,
     Instem shall also supply to Thales, as appropriate:

     (a)  evidence from relevant labour rate indices to support the proposed
          labour element of any price;

     (b)  the effect of product mix variances on the rate of recovery of
          overheads;

     (c)  evidence of specific enhancements or variations to the service or
          facilities offered by Instem, to support the proposed overhead element
          of any price; and

     (d)  evidence of prices charged or to be charged by suppliers to support
          the product or component element of any price.

     Thereafter, the Parties shall negotiate in good faith with a view to
     agreeing the price to be applied to each Product to be manufactured by
     Instem in the relevant Contract Year ("Agreed Price"). Thales may request
     that it joins with Instem in negotiating the prices to be charged by
     suppliers for products or components to be purchased by Instem for
     installation in Products.

13.4 In respect of the fourth Contract Year and each subsequent Contract Year,
     Instem's proposed prices for that Contract Year may be increased so as to
     seek to achieve a maximum Net Sales Profit of 5 per cent. of sales.

13.5 During the second Contract Year, and each subsequent Contract Year the
     price to be charged for the manufacture and supply of any Product shall be
     the Agreed Price of that Product.

l3.6 From the first anniversary of the Commencement Date and during the
     remainder of Life of this Agreement, Instem shall be entitled to review and
     adjust the product or component element of any Agreed Price of any Product
     from time to time, but only to the extent necessary to take account of any
     variation to its costs resulting from market and/or economic forces
     (including, without limitation, variations in the cost of materials,
     exchange rate, valuations and alterations of duties) or from any changes
     made to any Specification or the structure of any Product, since the date
     of agreement or determination of the Agreed Price.

14   Minimum payments to Instem

14.1 After the end of each of the first, second and third Contract Years, Instem
     shall calculate the Received Amount for that Contract Year.

14.2 If the Received Amount in the first Contract Year is less than the amount
     of the Established Manufacturing Costs, Thales shall pay to Instem an
     amount equal to the shortfall, together with the Manufacturing Management
     Charge applicable to that shortfall.

14.3 If the Received Amount in the second Contract Year is less than the amount
     of the Established Manufacturing Costs, Thales shall pay to Instem an
     amount equal to the shortfall.


                                       13
<PAGE>

14.4 If the Received Amount in the third Contract Year is less than the amount
     of the Established Manufacturing Costs, Thales shall pay to Instem an
     amount equal to the shortfall.

14.5 For the purposes of clauses 14.3 and 14.4, Instem may adjust the amount of
     the Established Manufacturing Costs in order to take into account any
     variations in the costs and expenses falling within the categories which
     comprise the Established Manufacturing Costs and which are attributable to
     market and/or economic forces prevailing in the relevant Contract Year.

14.6 Instem confirms that if it is able to attract third party manufacturing
     businesses to the Hythe facility and is able to recover a proportion of the
     costs of operating that facility by carrying out that work, then to that
     extent it would not be Instem's intention to seek to enforce its
     entitlement to call on Thales to reimburse Established Manufacturing Costs
     which are not recovered via the manufacture of Products for Thales, whether
     pursuant to clauses 14.2, 14.3 or 14.4.

15   Payments by Instem to Thales

15.1 If the Actual Level of Business in the second Contract Year is equal to or
     greater than:

     (a)  the Actual Level of Business in the first Contract Year; and

     (b)  the Initial Level of Business

     and provided that Loaded Hours in the second Contract Year are greater than
     or equal to Loaded Hours in the first Contract Year, then Instem shall pay
     to Thales, within 30 days of calculation of the same, an amount equal to
     one half of the aggregate amount of the Manufacturing Management Charges
     received by Instem from Thales in the first Contract Year.

15.2 If the Actual Level of Business in the third Contract Year is equal to or
     greater than:

     (a)  the Actual Level of Business in the first Contract Year; and

     (b)  the Initial Level of Business

     and provided that Loaded Hours in the third Contract Year are greater than
     or equal to Loaded Hours in the first Contract Year then Instem shall pay
     to Thales, within 30 days of calculation of the same, an amount equal to
     one half of the aggregate amount of the Manufacturing Management Charges
     received by Instem from Thales in the first Contract Year.

15.3 If in any of the first three Contract Years Instem has earned a Net Sales
     Profit of at least 5 per cent Instem shall pay to Thales an amount equal to
     one half of that part of the amount of the Net Sales Profit which exceeds 5
     per cent.

16   Thales' undertakings

16.1 Thales agrees:

     (a)  that all consents, licences, approvals and permissions, statutory or
          otherwise as are or shall be required for the manufacture and supply
          of the Products and/or the New Products have been obtained and shall
          be maintained at Thales' own cost;


                                       14
<PAGE>

     (b)  that the Initial Specification complies and the Specifications will
          comply strictly with the laws of the United Kingdom and Thales will
          keep Instem informed as to all requirements or proposals to amend
          requirements in this respect.

17   Improvements

l7.l If either Party shall devise any improvement to the Initial Know-How,
     Know-How or any development with respect to methods of manufacturing the
     Products (an "Improvement" it shall, as soon as reasonably practicable,
     disclose to Instem the nature and means of making use of the Improvement
     and shall grant to the other Party, without requiring payment of any
     royalty, a personal, exclusive right to use the Improvement while this
     Agreement remains in force on the terms already agreed in respect of the
     licence by Thales to Instem relating to Initial Know-How and the Know-How.

17.2 In the event that Thales develops a requirement for New Products, Thales
     hereby agrees immediately to notify Instem of this fact and agrees to grant
     to Instem the right to supply such New Products to Thales on an exclusive
     basis subject to the terms of this Agreement. Thales further agrees
     promptly to make available to Instem all information within Thales'
     possession or control that may assist Instem in the manufacturing and
     supply of the New Products (including, for the avoidance of doubt the
     granting of an exclusive right to use any Intellectual Property required
     for the manufacture and supply of the New Products).

18   Intellectual Property

18.1 The Parties hereby agree that the Initial Specification and the
     Specification (including the copyright, design right or other Intellectual
     Property Rights in them) shall, as between the Parties, be the property of
     Thales and Thales warrants that the use of the Initial Specification and
     the Specification shall not infringe the Intellectual Property Rights of
     any third party.

18.2 Thales shall indemnify Instem against all costs, claims, losses, expenses
     and damages incurred by Instem arising directly or indirectly out of any
     infringement or alleged infringement of the Intellectual Property Rights of
     any third party as a result of the manufacture or supply of the Products if
     such Product are made to the Initial Specification or Specification, as
     appropriate.

19   Service, repair and delivery

19.1 Instem will establish a facility at the Property for the service and repair
     of the Products, which facility shall be operated in accordance with the
     procedures and guidelines set out at Schedule 4.

19.2 The fee to be charged by Instem for the Service Facility shall be:

     (a)  the Service Costs; and

     (b)  the cost to Instem of all materials and components used in the repair
          or servicing of Products; and

     (c)  the Manufacturing Management Charge applicable to the costs referred
          to in (a) and (b) above.


                                       15
<PAGE>

          If Instem obtains from any supplier of components or materials
          replacement items to install in Products which have been returned for
          repair or replacement, at no cost (or a reduced cost) to Instem, or
          obtains any similar benefit as a consequence of having received
          defective components or materials from a supplier, then Instem shall
          reflect such savings or benefits in the amounts charged to Thales
          pursuant to this clause 19.2.

19.3 At the end of each Contract Year, the Parties, acting reasonably, shall
     review and adjust the Service Costs and, for the following Contract Year,
     the "Service Costs" for the purposes of this clause shall be the Service
     Costs as agreed between the Parties.

19.4 The costs to be charged for. the Service Facility shall be invoiced to
     Thales by Instem in twelve equal monthly instalments, each of which
     invoices shall be payable in accordance with clause 10.

19.5 The Parties hereby acknowledge that the costs to be charged for the Service
     Facility from time to time may also need to be adjusted by agreement
     between the Parties to take into account the extent to which:

     (a)  the Service Facility is provided by Instem to third parties; and/or

     (b)  the Service Costs for a particular Contract Year are higher than the
          costs reasonably anticipated by the Parties because of Instem failure
          to manufacture the Products to the Specification.

19.6 Instem shall make available to Thales a delivery van plus driver for the
     purpose of making deliveries of Products at Thales direction, on the
     following terms:

     (a)  Instem shall maintain insurance cover for the vehicle and the driver;

     (b)  Thales shall be responsible for insuring any Products in transit;

     (c)  Instem shall charge Thales a fee of (pound)5,136 per month for the
          provision of the Service, plus the expenses incurred in operating it,
          including fuel costs and driver accommodation expenses; and

     (d)  at the end of each Contract Year, the Parties, acting reasonably,
          shall review and adjust the delivery costs for the following Contract
          Year.

20   Confidential information

20.1 Each of the Parties will during the Life of this Agreement and after its
     termination for whatsoever reason maintain at all times strict secrecy and
     confidentiality concerning the business affairs of the other as may come to
     its knowledge and without prejudice to the generality of the foregoing,
     will, in particular:

     (a)  not disclose to any third party, except in the course of its duties
          under this Agreement any information concerning the terms and
          conditions contained in this Agreement;

     (b)  not disclose any information concerning methods of manufacture,
          turnover production costs, sale or promotion of the Products including
          in particular information as to the identity of or prices charged to
          customers or any other such information as may reasonably be deemed to
          be of value to a competitor and to use such information only for the
          purposes of this Agreement;


                                       16
<PAGE>

     (c)  take all reasonable steps including the insertion of relevant clauses
          in contracts of employment to prevent disclosure as aforesaid by
          employees of either party; and

     (d)  safeguard and protect all documents of a confidential nature from and
          against damage, theft, loss or from perusal by unauthorised persons.

20.2 The restrictions contained in clause 20.1 shall not apply to any
     information which:

     (a)  is at the Commencement Date, or subsequently becomes, public knowledge
          other than through breach of clause 20.1; or

     (b)  can be shown by the Party intending to disclose such information to
          have been known to it prior to its disclosure under this Agreement.

21   Termination

21.1 Without prejudice to any other rights which may have accrued up to the date
     of termination, either Party may, by notice in writing, terminate this
     Agreement forthwith:

     (a)  if the other commits an irremediable breach of any of the provisions
          of this Agreement or if, having committed a remediable breach, fails
          to remedy the same within 30 days of receiving written notice
          requiring it to do so; or

     (b)  if the other enters into liquidation (whether compulsory or voluntary)
          or has a receiver, administrator, administrative receiver or manager
          appointed over all or any part of its assets; or

     (c)  in accordance with clause 5.5 of the Asset Sale Agreement.

22   Consequences of termination

22.1 Upon termination of this Agreement for whatever cause:

     (a)  Thales shall purchase from Instem at the then prevailing price all of
          the Products at that time the property of Instem which have been
          manufactured by Instem in accordance with clause 6 of this Agreement;

     (b)  following repayment of the Loan, Thales shall purchase from Instem at
          the then prevailing price all of the remaining Stock (as defined in
          the Loan Agreement) (if any);

     (c)  each party shall return to the other or otherwise dispose of as the
          other shall direct all of the Products at that time the property of
          the other, all copies of documents of a secret or confidential nature
          relating to the implementation of this Agreement.

23   Force majeure

23.1 If the performance by a party of its obligations under this Agreement,
     other than the payment of money, is delayed or prevented due to Force
     Majeure that party shall be excused performance of such obligation for as
     long as and to the extent that the effects of the circumstance of Force
     Majeure continue.


                                       17
<PAGE>

24   Limitation on liability

24.1 Instem shall not be liable for any costs, claims, damages or expenses,
     whether arising out of any tortious act or omission, any breach of contract
     or statutory duty, of an indirect or consequential nature or that are
     calculated by reference to profits, income production or accruals or loss
     of such profits, income, production or accruals or by reference to accrual
     of such costs, claims, damages or expenses on a time basis.

24.2 The aggregate liability of Instem in each Contract Year (whether in
     contract or for negligence or breach of statutory duty or otherwise
     howsoever) to Thales under or in connection with this Agreement shall be
     limited to and in no circumstances shall exceed the sum of (pound)2,000,000
     (two million pounds sterling).

24.3 Instem shall not be liable to the extent that the subject of a claim:

     (a)  is recovered by Thales under the terms of any insurance policy (apart
          from any excess applicable to the relevant insurance);

     (b)  has been or is made good or is otherwise compensated for without cost
          to Thales.

24.4 Nothing in this Agreement shall operate so as to exclude or in any way
     limit either party's liability for fraud, or for death or personal injury
     caused by its negligence, or any other liability that may not be excluded
     for limited as a matter of English law.

24.5 Neither Party shall be liable for any default under this Agreement due to
     any Force Majeure.

25   Dispute resolution

25.1 Each Party shall appoint an appropriate person (each a "Contract Manager"
     and together the "Contract Managers") to manage all matters arising under
     or in connection with this Agreement and to monitor the general operation
     of this Agreement.

25.2 The Parties' operational teams shall use their best endeavours to resolve
     any dispute or difference of whatever nature howsoever arising under out of
     or in connection with this Agreement within 10 Working Days of such dispute
     or difference being identified and notified to the other Party, or such
     shorter period as may be agreed by the Parties.

25.3 In the event that the Parties' operational teams are unable to resolve such
     dispute or difference, the operational teams shall refer the problem or
     query to the Contract Managers.

25.4 In the event that the Contract Managers are unable to resolve such dispute
     or difference within 10 Working Days of referral or such shorter period as
     may be agreed by the Parties the Contract Managers shall refer the problem
     or query to a nominated director of each of the Parties.

26   Waiver

26.1 Delay in exercising, or a failure to exercise, any right or remedy in
     connection with this Agreement shall not operate as a waiver of that right
     or remedy. A single or partial exercise of any right or remedy shall not
     preclude any other or further exercise


                                       18
<PAGE>

     of that right or remedy, or the exercise of any other right or remedy. A
     waiver of a breach of this Agreement shall not constitute a waiver of any
     subsequent breach.

27   Notices

27.1 A notice, approval, consent or other communication in connection with this
     Agreement ("Notice") shall be in writing and may be served personally or
     delivered or sent by pre-paid ordinary post to the registered office
     address of the relevant party from time to time or transmitted to the fax
     number (if any) of the relevant party as specified below or, if the
     addressee notifies another address or facsimile number, in accordance with
     this Agreement to that address or facsimile number:

     (a)  if to Instem:

          Fax No:        01785 616600

          Attention:     Mr D M Sherwin

     (b)  if to Thales:

          Fax No:        08707 224042

          Attention:     Mr J Malins

28   Scope of agreement

28.1 Each of the Parties acknowledges that it is not entering into this
     Agreement in reliance upon any representation, warranty, collateral
     contract or other assurance (except those set out in this Agreement and the
     documents referred to in it) made by or on behalf of any other party before
     the execution of this Agreement. Each of the Parties waives all rights and
     remedies which, but for this clause, might otherwise be available to it in
     respect to any such representation, warranty, collateral contract or other
     assurance provided that nothing in this clause 28.1 shall limit or exclude
     any liability for fraud.

28.2 Each Party shall at its own cost do and execute, or arrange for the doing
     and executing of, each necessary act, document and thing reasonably
     requested of it by the other Party from time to time to implement this
     Agreement.

28.3 No variation of this Agreement shall be effective unless it is in writing
     and executed by or on behalf of each of the Parties.

29   Assignment

29.1 Instem shall be entitled to sub-contract its rights under this Agreement in
     whole or in part with the prior written consent of Thales, such consent not
     to be unreasonably withheld or delayed.

29.2 Instem shall not be entitled to assign or transfer its rights under this
     Agreement in whole or in part without first obtaining Thales' consent in
     writing.

29.3 Thales shall not be entitled to assign, transfer or sub-contract its rights
     under this Agreement in whole or in part without first obtaining Instem's
     consent in writing.


                                       19
<PAGE>

30   Relationship between parties

30.1 Nothing in this Agreement shall constitute or be deemed to constitute a
     partnership or other form of joint venture between the Parties or
     constitute or be deemed to constitute either Party the agent or employee of
     the other for any purpose whatsoever.

31   The Contracts (Rights of Third Parties) Act 1999

31.1 No person who is not a party to this Agreement is entitled to enforce any
     of its terms whether under the Contracts (Rights of Third Parties) Act 1999
     or otherwise.

32   Severance

32.1 The Parties intend each provision of this Agreement to be severable and
     distinct from the others. If a provision of this Agreement is held to be
     illegal, invalid or unenforceable, in whole or in part, the Parties intend
     that the legality, validity and enforceability of the remainder of this
     Agreement shall not be affected.

33   Entire agreement

33.1 This Agreement sets out the entire agreement and understanding between the
     Parties relating to the matters contemplated by this Agreement, and all
     conditions, terms and warranties, whether express or implied, are excluded
     to the fullest extent permitted by law if they are not expressly set out in
     this Agreement.

34   Applicable law and jurisdiction

34.1 This Agreement is governed by, and shall be interpreted in accordance with,
     English law.

34.2 Each party irrevocably submits to the exclusive jurisdiction of the English
     Courts in relation to all matters arising out of or in connection with this
     Agreement.

In Witness whereof this Agreement has been entered into on the day and year
first above written.

Signed by:                              )
duly authorised for and on behalf of    )
THALES CONTACT SOLUTIONS                )
LIMITED                                 )    /s/
                                         -----------------------

Signed by:
                                        )
duly authorised for and on behalf of    )
INSTEM TECHNOLOGIES LIMITED             )    /s/
                                         -----------------------


                                       20
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 1 of 15


- --------------------------------------------------------------------------------
                   PRODUCTION TEST SPECIFICATION, PTS 185-100

                          P185 Renaissance - Release 6

                             Tienna Recorder Build
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                             AMENDMENT RECORD LIST
- --------------------------------------------------------------------------------
Issue      No. of     Date       Name        Details
           sheets
- --------------------------------------------------------------------------------
A          15         11/06/01   P.Joyce     Document originated





- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Author: P.J.Joyce             Approved:                     Authorised:


Date: 24/07/01                Date:                         Date:
- --------------------------------------------------------------------------------


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 2 of 15


                                    CONTENTS
Item                                                                        Page

40185-100-10 TIENNA .......................................................... 4

  1.   TEST EQUIPMENT & DOCUMENTATION REQUIRED ............................... 4
  2.   PRELIMINARY CHECKS AND SET-UP ......................................... 4
  3.   INITIAL BUILD ......................................................... 5
  4.   CHASSIS TEST .......................................................... 5
  4.1  FIT PSUs .............................................................. 5
  4.2  MAINS SAFETY TESTS (REAR CHASSIS ASSEMBLY ONLY) ....................... 5
  4.3  POWER UP (REAR CHASSIS ASSEMBLY ONLY) ................................. 5
  5.   INITIAL FUNCTIONAL CHECKS ............................................. 6
  6.   CONFIGURING THE TIENNA RAID DRIVES .................................... 8
  7.   INSTALLATION OF THE PROCESSOR MODULE ................................. 10
  8.   CONFIGURING THE TIENNA SCSI BIOS ..................................... 11
  9.   INSTALLATION OF THE HEALTH MONITOR ................................... 11
  10.  INSTALLING DSP, PCM32, ISDN & SS7 LINE CARDS ......................... 11
  11.  RESTORING THE TIENNA IMAGE FROM THE 40185-406-10 CD .................. 12
  12.  SET THE BARD DRIVE PARTITIONS ........................................ 13
  13.  SETTING UP THE NETWORK CONNECTION .................................... 14
  14.  MAINS SAFETY TESTS PRIOR TO HANDOVER ................................. 14
  15.  DOCUMENTATION ........................................................ 14

APPENDIX 1 .................................................................. 15

1. IMAGE RESTORING AND CREATING ............................................. 15


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<PAGE>

PTS 185-100                      Tienna Issue A                     Page 3 of 15


                                 IMPORTANT NOTE

 All units for test will contain, as a minimum part of a document package, Work
 in Progress Movement Tickets and appropriate Stage Cards indicating applicable
   stages of inspection and test. Before commencing the following tests, the
  operator shall, by reference to the Stage Cards, guarantee that all previous
stages of inspection and test have passed. In the event of all appropriate cards
not showing clear evidence of completion, the operator must reject the unit for
corrective action before proceeding with the tests. On successful completion of
the following tests, the test operator shall endorse the Production Test Result
                 Sheet (PTRI85-001-002) in the approved manner.

                                     STATIC

 Ensure that appropriate measures are taken to prevent damage to components by
   static electricity before handling PCBs which have been or are about to be
                   removed from the machine undergoing test.

                              POWER SUPPLY FAILURE

 If the Tienna undergoing test is in need of a replacement power supply, it is
    vitally important that all boards are removed from the UUT and that the
        equipment is re-tested to MTS 185-XXX before power is applied.

                                   DISK DRIVE

        Do not move or jolt the UUT while the disk(s) is (are) running.

                 USA MAINS SUPPLY IN A RACK MOUNTED ENVIRONMENT
                                    WARNING
 Both the LINE and NEUTRAL are FUSED in equipment racks destined for the U.S.A.

                             GLOSSARY of TERMS USED

Hostname         A way of identifying the computer. For Renaissance machines to
                 work properly, the 'Hostname' should be the same as the
                 'Computer Name'. It can be determined by right clicking the
                 'Network Neighborhood' icon on the desktop (also found in the
                 'Control Panel') and selecting 'Properties'.

IP Address       A setting to allow a computer to be recognised on a network.
                 Each networked computer has a unique IP Address.

Device Drivers   Software specific to a piece of hardware which acts as an
                 interface between the operating system (Windows NT) and the
                 hardware electronics.

For further descriptions of terms used read Visual Source Safe entry:

       Renaissance/System/Non Release Specific/Documents/P185 Glossary.doc

This document describes terms such as CMSU, Port, Offline, Online & Nearline.


             Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 4 of 15


                              40185-100-10 TIENNA

1. TEST EQUIPMENT & DOCUMENTATION REQUIRED

     49185-100-10   Manufacturing Layout     Mainframe Assembly
     Process Specification                   PS1308
     Customer Requirements Sheet             Supplied by Contracts Dept.
     Portable Appliance Tester, PAT 101      e.g. TEM827
     PC with Hyperterminal & RS232 cable.
     Digital Multimeter                      e.g. Racal Dana 4008
     P185 Tienna Dummy Load                  TE2668
     P185 Tienna Power Supply Monitor        TE2664
     Fan Test Aid                            TExxyyzz
     Health Monitor Alarm & Warning Checker  TE3010
     Tienna Workstation Image CD             40185-406-10

2. PRELIMINARY CHECKS AND SET-up

2.1. Documentation checks

2.1.1.    Each Tienna is built according to the documentation supplied. Check
          from the list below that the relevant documents have been supplied:-

          o   Bill of Materials    (Issue as specified on MFGPRO)
          o   Assembly Drawings    (Issue as specified on the Bill of Materials)
          o   Active ARs, PCIs and Hold Orders.

2.1.2.    Check the equipment against the assembly drawing using the Bill of
          Materials for reference.

2.1.3.    Check the equipment configuration sheet has been completed correctly.

2.1.4.    Check that actions on all active Hold Orders have been implemented.

2.1.5.    Check all modules/assemblies before or as they are used to build the
          Tienna-

2.1.6.    Confirm all fixings are secure and all cable looms are dressed and
          routed correctly

2.1.7.    Check condition of cables / sleeves.

2.1.8.    Check all visible surfaces for marks or damage.

2.1.9.    Check the general condition of the equipment.

2.1.10.   Details of any defect found and rework carried out must be recorded
          onto a 'Non-conformance Report' sheet.

2.1.11.   IMPORTANT: Check that the jumper option link setting narrow or wide
          SCSI operation is fitted to the 40185 303 processor i/f pcb.

2.2. Polarity Keys Fitted Check

2.2.1.    The Tienna processors must have polarising keys fitted. These should
          be a blue key fitted to J1, and a brown key fitted to J4 connectors.

          (The purpose of these keys, and in particular, the brown key, is to
          prevent the card from being fitted to the wrong slot. In the case of
          the processor, fitting to the wrong slot is catastrophic. The
          processor and the backplane suffer burnt out circuit traces resulting
          in both items being written off).

2.2.2.    The backplane should have a brown polarising key.

          Reject any items that do not comply.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 5 of 15


3. INITIAL BUILD

3.1. Refer to the Equipment General Assembly drawing 40185-100-10 and the
     Manufacturing Layout document 49185-100-10 for how to construct the
     chassis.

3.2. Apply the chassis type label to the chassis as shown on drawing
     40185-100-10. Apply the serial number label to the serial number box within
     the chassis label.

3.3. Enter the serial numbers for the following items into the appropriate boxes
     on the configuration sheet
     CFS185-001:-                                            P.S.U. and Chassis.

4. CHASSIS TEST

Test the build so far as outlined in this paragraph and enter the results into
the appropriate boxes in the Test Results Sheet PTR185-100.

          TEST EQUIPMENT REQUIRED
          PAT101 Portable Appliance Tester             TEM827
          Digital Multimeter (3 1/2 digit to better than 0.2%)    e.g. TEM621
          Tienna Power Supply Monitor                  TE2664
          P185 Chassis Power Wiring Dummy Load         TE2668

4.1. FIT PSUs

Fit 2 Power Supply Units, one into each PSU backplane. I.E. there are 4 slots, 2
of which share one PSU backplane, 2 the other PSU backplane.

NOTE:

Ensure p.s.u. output cable ends are insulated so as not to cause short circuit.

4.2. MAINS SAFETY TESTS (Rear Chassis Assembly only)

4.2.1.    Carry out 'Earth Bond Test' according to paragraph 3 in PS1308 for '4A
          Earth Bond' on the Unit under test mains input socket.

4.2.2.    Insert a Mains supply lead into the appropriate Mains input connector
          for the p.s.u. (or pair of PSUs*) under test and switch on.
          * Depending upon what the unit ships with.

4.2.3.    Carry out 'Insulation Test' according to paragraph 4 in PS1308 for
          'Earthed Equipment' on the Unit under test mains input socket.

4.3. POWER UP (Rear Chassis Assembly only)

4.3.1.    Connect the UUT drive power connectors from one of the p.s.u.
          backplanes to the flying leads on TE2668

4.3.2.    With the Tienna mains switch OFF, connect a powered mains lead to
          mains input Socket no. 1 only. Check that the 'INPUT OK' and FAULT'
          LEDs illuminate on the first PSU.

4.3.3.    Connect up the Dummy Load box TE2668, including the feedback cable.

4.3.4.    Switch the Tienna mains on and check that all LEDs illuminate on the
          top panel of the Dummy Load Box TE2668. Using the DVM, measure the
          voltages and record on the Test Result Sheet.

4.3.5.    Monitor the 5V rail. Switch the 50mV/Sense (feedback) switch to the
          opposite position and observe that the output voltage changes by 50mV
          +/- 10mV. Repeat with the same test limits on the 3V3 rail and +12v
          rail.

4.3.6.    Repeat paragraphs 4.1 to 4.5 for the other p.s.u. backplane.

4.3.7.    Switch off the Tienna and disconnect Mains input. Connect drive power
          cables to the HDD carriers.


             Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 6 of 15


5. INITIAL FUNCTIONAL CHECKS

5.1. Check that the jumpers on each hard drive bay match the diagram below:

                TIENNA Hard Drive Channel & Ident arrangements.

   [The following table was represented as a graphic in the printed material.]

                         Set Jumper Links to these ID's

                               Ch01        Ch02
                            ----------  ---------
                PSU's       00  01  02  00  01  02

5.2. The following table shows the arrangement of hard drives, depending upon
     how many drives are fitted (3 is the minimum):

   ------------------------------------------------------------------------
   No. Drives              ChO1                           Ch02
   ------------------------------------------------------------------------
        3         00        01                   00
        4         00        01                   00        01
        5         00        01        02         00        01        02
        6         00        01        02         00        01        02
   ------------------------------------------------------------------------

5.3. Fit 3 Hard Drives in positions
          CH1       ID00,     CH1       ID01,     CH2       ID00
     Lock Pod doors.

5.4. Join the two halves of the Tienna as directed by the Manufacturing Layout
     document 49185-100-10.

5.5. Check that at least two PSU's are fitted in the Tienna. If only two are
     fitted, one must be in one PSU backplane and one in the other PSU
     backplane.

5.6. Insert PSU Test Monitor Card, TE2664 into the Processor slot.

5.7. With the Tienna mains switch OFF, connect a powered mains lead to mains
     input Socket no. 1 only.
          Check that the 'INPUT OK' and FAULT' LEDs illuminate on the first PSU

5.8. Switch the Tienna mains switch on and check that all LEDs illuminate on the
     front panel of TE2664.

5.9. Check that the 'FAULT' LED is extinguished on the first PSU

5.10.     Ensure all 3 fans in the fan tray are running and that the Raid
          Controller fan is running.

5.11.     Ensure that the Raid Controller passes all its diagnostic tests, with
          no alarms or warnings. Some 30 seconds after applying power, the boot
          sequence will be complete. The Raid controller should display the time
          and temperature.


            Thales Contact Solutions Limited : Company Confidential
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PTS 185-100                      Tienna Issue A                     Page 7 of 15


5.12.     Measure the DC supply voltages generated by each Power Supply Unit
          (PSU) as follows:

          o    Install a PSU in positions 1 and 3.

          o    Plug mains power into power socket 1 and using the DMM on the
               TE2664 test points, ensure all voltages are within specified
               limits. (See table in PTR185-100 for paragraph 4.3). Remove the
               power cable.

          o    Plug mains power into power socket 2 and ensure all voltages are
               within specified limits. Remove the power cable.

5.13.     Power off and remove the PSUs. Install a PSU in positions 2 and 4.
          Repeat para 5.15 for the alternative PSU positions.

5.14.     Switch the Tienna off and remove TE2664.

          Fit hard drives into the remaining 3 positions. Plug powered mains
          leads into both input sockets and switch on. Check that all the hard
          drive pod fans are drawing air into the unit using TExxyyzz. (Note:
          there are 2 fans per pod).

5.15.     Ensure the left hand LED on each pod illuminates 'green', indicating
          that the power is on. The right hand LED should flash amber when drive
          activity is detected. (I.E. erratically).

5.16.     To each pod in turn, unlock, but DO NOT OPEN each pod door and then
          re-lock immediately. Check that the right hand LED now flashes red,
          but extinguishes after approximately 30 seconds.

5.17.     Switch the Tienna off.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 8 of 15


6. CONFIGURING THE TIENNA RAID DRIVES

6.1. Refer to the diagram and table in para 3.3.2 & 3 to check the jumpers on
     each hard drive bay.

6.2. Check that at least two PSU's are fitted in the Tienna. If only two are
     fitted, one must be in one PSU backplane and one in the other PSU
     backplane.

6.3. The Raid facility must be tested with the full complement of hard drives
     even if the customer order is for less than this. Install 6 hard drives.
     Connect a PC running Hyperterminal via an RS232 comms lead to the Serial
     Port on the front panel of the Tienna.
     Run Hyperterminal on the PC.

6.4. Switch on the Tienna. The Hyperterminal screen fills with diagnostic
     messages from the Raid Controller eventually presenting the raid controller
     identity screen. Press the Enter key to bring up the 'System Menu'.

6.5. Select 'Display Drives'. Press the Enter key. The Raid Controller will
     identify the drives. If the message "Disk Channel 'X' failure, appears,
     where 'X' is the failed channel then power down, rectify the fault and try
     this test again.

6.6. Power down if necessary to remove any drives that are not part of the
     customer order.

6.7. Connect a PC running Hyperterminal via an RS232 comms lead to the Serial
     Port on the front panel of the Tienna.
     Run Hypertennina1 on the PC.
     Switch on the Tienna. The Hyperterminal screen fills with messages from the
     Raid Controller, eventually presenting the raid controller identity screen.
     Press the Enter key to bring up the 'System Menu'.

6.8. Select 'Display Drives'.
     All the fitted drives will be listed. Check that this is the case.

     (The menus presented at each stage will disappear after a short while -
     simply press the 'Esc' escape key to return to the last used screen).

6.9. From the 'System Menu', select 'Configuration Menu', 'Set Date/Time'.
     Correct if necessary.

6.10.     Select 'Backoff Percent'. Check that this reads 1%.
          Select 'Host Configuration'. Check/set the following items:
          (press Enter after each item).
               Target ID = 0
               Bridge LUN = 01
               Termination = ON
               Termination Power = ON

6.11.     Press Enter. At which point the prompt "Are you sure" appears.
          Answering 'Yes' will produce the response 'Config Done'.
          Press the 'Esc' key to return to the 'System Menu'.

6.12.     Select 'Add an Array' and press Enter.
          Type the Array name which has a specific format using the Order
          Number, followed by the letters TNA and two digits signifying which
          Tienna it is. E.G. (SP12345TNA01). Press Enter.
          Set the following:
               LUN = 00
               Raid Type = Raid 5
               Number of Drives = As Customer Order.

6.13.     Press Enter.

6.14.     Select 'Drives' and press Enter. Drive details are displayed.
          Highlight each entry in turn and press Enter. Entries are then greyed
          out, as they become part of the array.

6.15.     Set the 'Chunk Size' to 64kB.

6.16.     At this point the prompt "Are you sure" appears. Answering 'Yes' will
          produce the response 'Creating, Initialising' with '% Complete'.
          (The initialisation process takes approximately 30 of your earth
          minutes).

          When complete, press the 'Esc' key to return to the 'System Menu'.
          Close Hyperterminal. Disconnect the PC RS232 connection.
          The Raid Array set up is complete.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                     Page 9 of 15


6.17.     Switch the Tienna off. Remove each hard drive in turn. Tick the
          appropriate boxes on the hard drive ident label. Log the serial number
          of each drive on the Configuration Sheet.
          Re-insert the drive into the pod and lock in place.

NOTE: for an unexplained reason, about one in ten installations results in the
response "Command Failed" being received at the beginning of the process. In
this case start again at paragraph 6.9.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 10 of 15


7.   INSTALLATION of the PROCESSOR MODULE.

7.1. Insert a Blanking Panel into slot 12, to enable the upper and lower tapped
     strips to align correctly. Remove the Blanking Panel.

7.2. Insert a Processor Module into slots 8 & 9. (This is easier said than done
     as the combined engagement forces of all the sockets on the module is
     high).

7.3. Connect a monitor, mouse and keyboard to the processor.

7.4. Switch the Tienna on whilst at the same time pressing the F2 key, to enter
     the BIOS setup facility. Check that the 'PWR' LED on the Processor front
     panel is illuminated.

7.5. Adjust Main BIOS Settings:

          Select 'Main' on the BIOS Setup display.
          Set the system time and date if required, using the + & - keys.
          Set Legacy Diskette A:                            Disabled
          Select Boot Options,                              Enter.
          Set Floppy Check:                                 Disabled
          Set Quiet Boot Screen                             Disabled
          Set POST Errors:                                  Enabled
          Press                                             Escape.

7.6 Adjust Advanced BIOS Settings:

          Select 'Advanced'
          Select I/O Device Configuration                   Enter
          Set Floppy Disk Controller:                       Disabled
          Press Escape.
          Select PCI Configuration,                         Enter
          Select Embedded PCI Devices                       Enter
          Set Embedded Ethernet:                            Enabled
          Set Adaptec Ultra-2 SCSI Adapter:                 Enabled
          Press                                             Esc, Esc.

7.7. Set the Boot Device Order:

          Select 'Boot'. Following the on-screen instructions,
          Move ATAPI CD-ROM Drive to the top of the list.
          Move Hard Drive to position 2.
          Press Escape.
          Select 'Exit Saving Changes', Enter
          Confirm changes and exit.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 11 of 15


8. CONFIGURING the TIENNA SCSI BIOS

8.1. Enter the SCSI BIOS Setup Utility:

          Switch off the Tienna. Switch it back on.
          Watch for the screen prompt asking for CtrlA to be pressed to enter
          the SCSI BIOS.
          Press the Ctrl and A keys together when the prompt appears.

8.2. Set the SCSI ID & LUN:

          Select Configure
          View Host Adapter Settings                        Enter.
          Select Boot Device Options                        Enter
          Set Boot SCSI ID                                  0
          Set Boot LUN Number                               1
          Press                                             Esc, Esc

8.3. Set SCSI Device I/O #0:

          Select SCSI Device Configuration,                 Enter.
          Select BIOS Multiple LUN Support
          Set SCSI Device I/O #0                            Yes
          Remainder Device I/O's                            No
          Press                                             Esc, Esc
          Confirm changes
          Press                                             Esc
          Exit Utility.

9. INSTALLATION of the HEALTH MONITOR

(If required, otherwise fit a blanking plate 40185-577-XX - there are currently
two types, either of which may be used).

9.1. Install the Health Monitor module 40185-125-11 in slot 1.

10. INSTALLING DSP, PCM32, ISDN & SS7 Line Cards

10.1.     Check that cards have the polarising keys fitted.

10.2.     Power down the Tienna.

10.3.     Install the El and PCM32 cards from the right hand side (slot 16) of
          the Tienna, working left.

10.4.     Install DSP cards from next to the Health Monitor card filling slots
          toward the processor card.

10.5.     Install SS7 cards to the right of the processor, starting at slot 10.

10.6.     Software installation is performed at a later stage.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 12 of 15


11. RESTORING the TIENNA IMAGE from the 40185-406-10 CD

Once the Rack has been assembled installation of Operating System can begin.

To ease the process 'images' of finished installations have been taken. These
are copies of the hard drive in a format such that it may be written back to
(restored to) any other hard drive (provided the drive is equal to or larger
than the original used to create the image).

A description of the process is given in Appendix 1.

11.1.     Run PQDI.EXE:

          o    Insert the 40185-406-10 CD into the drive and restart the
               machine. Wait for the A:\ prompt to appear on the display.
          o    Type z:             Enter
          o    Type CD\PQDIPRO     Enter
          o    Type PQDI           Enter
          o    The Power Quest Drive Image Pro screen will be displayed.

11.2.     Restore the Image:

          o    Click Restore Image.
          o    Click Browse.
          o    Double click the Z:\ drive.
          o    For Tienna, double click the Images folder.
          o    Click CB3500BX.PQI (the Tienna image file).
          o    Click OK
          o    Click Next.
          o    Click Next.
          o    Click Leave Remaining Free space, OK.
          o    Click Advanced Options.
          o    Click Verify Disk Writes, OK.
          o    Click Finish.
          o    Wait for the image to be restored.
          o    This will take approximately 90 seconds. At the end the results
               may be displayed if required.

11.3.     Re-start the machine.

          o    Remove the CD-ROM.
          o    Turn the power of then on again, or press the Ctrl, Alt, Delete
               keys.
          o    Login with User Name 'RenaissanceServices', Password 'network'
               (case sensitive).


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 13 of 15


12. SET THE HARD DRIVE PARTITIONS.

12.1      Re-assign the CD-ROM drive letter:

          o    Click 'Start' Programs 'Administrative Tools (Common)' and select
               'Disk Administrator'.
          o    Right mouse click on the CD-ROM (D:) drive and click 'Assign
               Drive Letter'.
          o    Set the drive letter to Z and click 'OK'.


12.2      Create an E: drive partition:

          o    Right mouse click on the 'Free' disk to the right of the 'C:'
               drive.
          o    Click 'Create' and set the partition size to 2000 MB. Click 'OK'.
          o    Right mouse click on the new partition and 'Assign Drive Letter'
               E.
          o    Click on the E: partition and select 'Commit Changes'.
          o    Click on the E: partition and select 'Format', click 'FAT' and
               'Quick', then 'Start' Close' when finished.
          o    Click on the E: partition and select 'Properties'. Set the label
               to 'IMAGES'. Click 'OK'.

12.3.     Create a D: drive partition:

          o    Right mouse click on the 'Free' disk to the right of the new
               'E' partition.
          o    Click 'Create' and set the partition size to the remainder of
               'Disk 0'.
          o    Right mouse click on the latest partition and 'Assign Drive
               Letter' D.

(The reversal of the lettering is deliberate. The reason is that Power Quest
Drive Image requires a FAT partition within the first 8GB of the hard drive, yet
this partition is required to be the last in the list).

          o    Click on the D: partition and select 'Commit Changes'.
          o    Click on the D: partition and select 'Format', click 'NTFS' and
               'Quick', then 'Start'.
          o    Click 'Close' when finished.
          o    Click on the D: partition and select 'Properties'. Set the label
               to 'DATA'. Click 'OK'.

12.4.     Close 'Disk Administrator'


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 14 of 15


13. SETTING UP THE NETWORK CONNECTION

          DO NOT CONNECT TO THE NETWORK UNTIL AFTER THE MAINS SAFETY TESTS
          (next):

13.1.     Set the Host Name of the computer.

          o    Right mouse click the 'Network Neighborhood' icon
          o    Select 'Properties'. Select the 'Protocol' tab.
          o    Click the 'Identification;' tab and note the Computer Name.
          o    Select 'Properties'. Select the 'Protocol' tab.
          o    Select 'TCP/IP Protocol' and click the 'Properties' button.
          o    Click the DNS tab. Enter the Computer Name in the Host Name box.
          o    There must be NO spaces in the Computer Name or Host Name and the
               following are the only permissible characters for a Host Name
               (maximum of 15 characters) :-
               => 'a'-'z'
               => 'A'-'Z'
               => '0'-'9'
          o    Click 'Apply', 'OK'.

13.2.     Set the Network IP Address.

          o    Select 'TCP/IP Protocol' and click the 'Properties' button.
          o    Click the 'IP Address' tab.
          o    Click the 'Specify an IP address' radio button.
          o    Set the network IP address to one of the numbers allotted for
               Tienna production. Each sub-system unit must have its own unique
               IP address.
          o    Set the Subnet Mask to 255.0.0.0. (Known as Class A).
          o    Click 'Apply', 'OK', 'OK'.

14. MAINS SAFETY TESTS PRIOR TO HANDOVER

The following tests were performed earlier. The test are to be performed again,
with the addition of 'Earth Leakage', to meet with legal obligations in reagrd
to mains safety.

14.1.     Carry out 'Earth Bond Test' according to paragraph 3 in PS1308 for
          '4A Earth Bond' on the Unit under test mains input socket.

14.2.     Insert a Mains supply lead into the appropriate Mains input connector
          for the p.s.u. (or pair of PSUs*) under test and switch on.
          *Depending upon what the unit ships with.

14.3.     Carry out an 'Earth Leakage Test' to PS1308, Paragraph 6.

14.4.     Carry out an 'Dielectric Strength (Flash) Test' according to
          paragraph 7 in PS1308 for 'Earthed Equipment' the Unit under test
          mains input socket.

15. DOCUMENTATION

          Ensure all modules and assemblies used to build the Tienna have been
          checked (re. para. 2.1).

          Ensure PTR is complete and fully stamped for this 'build' stage of
          test.

          Complete the configuration sheet CFS.

                       -- End of Tienna Build Procedure --


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-100                      Tienna Issue A                    Page 15 of 15


APPENDIX 1

1. IMAGE RESTORING and CREATING

1.1 To ease the process 'images' of finished installations have been taken.
These are copies of the hard drive in a format such that it may be written back
to any other hard drive (provided the drive is equal to or larger than the
original used to create the image).

1.2 Images are restored using PowerQuest Drive Image software. Whether creating
or restoring an image it is vital to select the 'Advanced' option button
presented by Drive Image just prior to the disk activity being initiated and
select 'Verify', before proceeding.

1.3 Restoring Images

Restoring an image from DVD RAM Drive:

Put the DVD disk containing the image to be restored into the DVD RAM drive.
Place floppy disk 1 of the PowerQuest 2 disk set into the 3 1/2 inch drive.
Reboot the system. Insert disk 2 of the set. Run a:\PQDI. Follow the on screen
instructions. 'Browse' to select the 'C:Floppy' drive (Drive Image's name for
the DVD drive) and locate the required image file. Click on the file to be
restored, click 'OK' Next'. Click 'Select All', ,Next,, 'Delete Partitions',
'Delete All'. Finally select 'Advanced', 'Verify', 'OK' before starting the
restore operation.

During the restore process, if the image is a large one, a warning message
'Moving past cylinder 1023....' Is shown. Click 'Yes' to proceed with the
restore operation.

During the restore, a '1023 Cylinders' message box will ask whether to continue,
click 'OK', 'Exit' when finished. Do not forget to remove the disks used.

Restoring an image from Hard Drive:

Put the CD containing Drive Image into the CD ROM drive. Reboot the system. Run
Z:\PQDIPRO\PQDI. Follow the on screen instructions, using 'Browse' to locate the
hard drive partition in which the image is stored (usually E:).

Restoring an image from CDROM

(Tienna Install disk with image on same disk as Drive Image Software):

Put the CD containing Drive Image into the CD ROM drive. Reboot the system. Run
Z:\PQDIPRO\PQDI. Follow the on screen instructions, using 'Browse' to locate the
stored image (usually Z:\Images\).

At the point where you are asked about 'Resizing Partitions', select 'Leave
remaining space.'. Follow the on screen instructions remembering to select
'Advanced', 'Verify'.

1.4 Creating Images of installations:

After SQL and other Microsoft software has been installed and once the
Renaissance software has been installed, it is very useful to take an image of
the drive.

The creation process allows for a comprehensive description of what the image
contains. Do make use of this facility in order to help others using your work.
Proceed as follows:

Creating an image to store on DVD RAM Drive:

Put the DVD disk that is to contain the image to be restored into the DVD RAM
drive. (The DVD disk must be formatted to 'FAT16 2.0GB' standard. Select
'Execute Physical Format' when formatting). Place floppy disk 1 of the
PowerQuest 2 disk set into the 3 1/2 inch drive. Reboot the system. Insert disk
2 of the set. Run a:\PQDI. Follow the on screen instructions, remembering to
select 'Advanced', 'Verify'.

Creating an image to store on the Hard Drive:

Put the CD containing Drive Image into the CD ROM drive. Reboot the system. Run
Z:\PQDIPRO\PQDI. Follow the on screen instructions, using 'Browse' to locate the
hard drive partition in which to store the image. Remember to select 'Advanced',
'Verify'.


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-101                       Rel 6 Issue A                      Page 1 of 3


- --------------------------------------------------------------------------------
                       PRODUCTION TEST RESULTS PTS 185-101

                          P185 Renaissance - Release 6

                      Renaissance Build - Test Result Sheet
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
                             AMENDMENT RECORD LIST
- --------------------------------------------------------------------------------
Issue      No. of     Date       Name        Details
           sheets
- --------------------------------------------------------------------------------
A          3          29/05/01   P.Joyce     Document originated





- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Author: P.J.Joyce             Approved:                     Authorised:


Date: 30/05/01                Date:                         Date:
- --------------------------------------------------------------------------------


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-101                       Rel 6 Issue A                      Page 2 of 3


- --------------------------------------------------------------------------------
                               RENAISSANCE PRODUCT
- --------------------------------------------------------------------------------
Customer                                     Order No.

- --------------------------------------------------------------------------------
                                             Serial No.s : (if applicable)

40185-122-10 GENERAL PURPOSE SERVER

40185-123-10 RAID ARRAY

40185-100-10 TIENNA
- --------------------------------------------------------------------------------

Stamp all completed items. Enter details and or measurements where requested.

- --------------------------------------------------------------------------------
PARA.    INITIAL BUILD                                      PTS185-001     STAMP
- --------------------------------------------------------------------------------
  1.     40185-122-10 GENERAL PURPOSE SERVER
- --------------------------------------------------------------------------------
 1.2     GPS RAID ARRAY SET UP
- --------------------------------------------------------------------------------
 1.4     CMSU RAID ARRAY SET UP (General Purpose Server)
- --------------------------------------------------------------------------------
 1.5     INSTALL the SCSI DRIVERS

 1.6     INSTALL the PLASMON (Juke Box) Drivers

 1.7     INSTALL the SOUND CARD Drivers
- --------------------------------------------------------------------------------
 1.8     INSTALL REPLAYER Line Cards & Dsp Cards
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
  2.     40185-123-10 RAID ARRAY
- --------------------------------------------------------------------------------


            Thales Contact Solutions Limited : Company Confidential
<PAGE>

PTS 185-101                       Rel 6 Issue A                      Page 3 of 3


- --------------------------------------------------------------------------------
  3.     40185-100-10 TIENNA
- --------------------------------------------------------------------------------
         MAINS SAFETY TESTS
3.2.4
         Earth Bond Test to PS 1308 paragraph 3.
         Insulation Test to PS 1308 paragraph 4.
- --------------------------------------------------------------------------------
3.3.12   POWER RAIL MEASUREMENT                                  PSU 1

         Measure the DC supply voltages. Ensure all     Backplane      Backplane
         voltages are within specified limits.              A              B

         +12v +/- 5% i.e. between 12.6 and 11.4v
         inclusive                                      ....... V      ....... V

         -12v +/- 5% -12.6v & -11.4v                    ....... V      ....... V

         +5v +/- 2% i.e. between 5.1 and 4.9v
         inclusive                                      ....... V      ....... V

         +3.3 +/- 5% 3.465v & 3.135v                    ....... V      ....... V

                                                                 PSU 2

         Measure the DC supply voltages. Ensure all     Backplane      Backplane
         voltages are within specified limits.              A              B

         +12v +/- 5% i.e. between 12.6 and ll.4v
         inclusive                                      ....... V      ....... V

         12v +/- 5% 12.6v & -11.4v                      ....... V      ....... V

         +5v: +/- 2% i.e. between 5.1 and 4.9v
         inclusive                                      ....... V      ....... V

         +3.3v +/- 5% 3.465v & 3.135v                   ....... V      ....... V
- --------------------------------------------------------------------------------
 3.4     CONFIGURE THE TIENNA RAID DRIVES
- --------------------------------------------------------------------------------
3.5.5 to PROCESSOR MAIN BIOS Settings.
 3.5.7
         Advanced BIOS Settings:

         Set the Boot Device Order:
- --------------------------------------------------------------------------------
 3.6     CONFIGURE the TIENNA SCSI BIOS
- --------------------------------------------------------------------------------


            Thales Contact Solutions Limited : Company Confidential

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-8.1
<SEQUENCE>8
<FILENAME>tex8_1-29996.txt
<DESCRIPTION>EX-8.1
<TEXT>
<PAGE>

                                                                     EXHIBIT 8.1


                            SIGNIFICANT SUBSIDIARIES
                            ------------------------

     The following is a list of all of our significant subsidiaries, including
the name, country of incorporation or residence, the proportion of our ownership
interest in each and, if different, the proportion of voting power held by us.

<TABLE>
<CAPTION>

                                         COUNTRY OF       PERCENTAGE OF      PERCENTAGE OF VOTING
                                      INCORPORATION OR      OWNERSHIP      POWER (IF DIFFERENT FROM
                                          RESIDENCE          INTEREST         OWNERSHIP INTEREST)
- ------------------------------------ ------------------  ---------------  --------------------------
NAME OF SUBSIDIARY
<S>                                  <C>                 <C>              <C>
NICE Systems, Inc.                      United States          100%                   --
NICE Systems GmbH                          Germany             100%                   --
NICE Systems Canada Ltd.                   Canada              100%                   --
NICE CTI Systems UK Ltd.               United Kingdom          100%                   --
STS Software Systems (1993) Ltd.           Israel              100%                   --
NICE APAC Ltd.                            Hong Kong            100%                   --
NiceEye BV                               Netherlands           100%                   --
NiceEye Ltd.                               Israel              100%                   --
Nice Systems SARL                          France              100%                   __
Racal Recorders Ltd                    United Kingdom          100%                   __
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>9
<FILENAME>tex10_2-29996.txt
<DESCRIPTION>EX-10.2
<TEXT>
<PAGE>

                                                                    Exhibit 10.2


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     I, Haim Shani, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of NICE-Systems Ltd. on Form 20-F for the year ended December 31, 2002
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
Form 20-F fairly presents in all material respects the financial condition and
results of operations of NICE-Systems Ltd.


June 26, 2003


                                      By:      /s/
                                      Name: Haim Shani
                                      Title: President & Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>10
<FILENAME>tex10_3-29996.txt
<DESCRIPTION>EX-10.3
<TEXT>
<PAGE>

                                                                    Exhibit 10.3

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     I, Lauri Hanover, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of NICE-Systems Ltd. on Form 20-F for the year ended December 31, 2002
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
Form 20-F fairly presents in all material respects the financial condition and
results of operations of NICE-Systems Ltd.


June 26, 2003


                                      By:     /s/
                                      Name: Lauri Hanover
                                      Title: Corporate Vice President and
                                             Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>11
<FILENAME>tex23_1-29996.txt
<DESCRIPTION>EX-23.1
<TEXT>
<PAGE>

                         CONSENT OF INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration Statements
Forms S-8 (Registration Nos. 333-11842, 333-9352, 333-11154 and 333-13686) and
Forms F-3 (Registration Nos. 333-12996 and 333-11250) of our report dated May
28, 2003, with respect to the consolidated financial statements of NICE Systems
Ltd. included in this Annual Report on Form 20-F for the year ended December 31,
2002.




                                                  Yours Truly,

                                             /s/ Kost,forer,& Gabay
                                             ----------------------
June 25, 2003                                KOST, FORER and GABBAY
Tel-Aviv, Israel                        A Member of Ernst & Young Global


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
