----

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

| OR |
|----|

|   |   |
|--------|--------|

| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|--------------------------------------------------------------------------------------|

| OR |
|----|

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

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

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| (Exact name of Registrant as specified in its charter) |
|--------------------------------------------------------|

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| (Translation of Registrant’s name into English) |
|-------------------------------------------------------|

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| (Jurisdiction of incorporation or organization) |
|-------------------------------------------------|

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| (Address of principal executive offices) |
|------------------------------------------|

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| (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
|-----------------------------------------------------------------------------------------|

| Title of Each Class                                                                                        | Name of Each ExchangeOn Which Registered |
|------------------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                                                                       |                                     |
| American Depositary Shares, each representingone Ordinary Share, par value oneNew Israeli Shekel per share | NASDAQ Global Select Market         |

----

----

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|  Large accelerated filer  þ |  Accelerated filer  o   |  Non-accelerated filer  o |
|-------------------------------------------------|--------------------------------------------------|------------------------------------------|

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|                                             PART I                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Page                                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                         |   |
| Item 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Identity of Directors, Senior Management and Advisers                        | 1 |
| Item 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Offer Statistics and Expected Timetable                                      | 1 |
| Item 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Key Information                                                              | 1 |
| Item 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Information on the Company                                                   | 22 |
| Item 4A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Unresolved Staff Comments                                                    | 44 |
| Item 5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Operating and Financial Review and Prospects                                 | 44 |
| Item 6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Directors, Senior Management and Employees                                   | 66 |
| Item 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Major Shareholders and Related Party Transactions                            | 81 |
| Item 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Financial Information                                                        | 83 |
| Item 9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | The Offer and Listing                                                        | 87 |
| Item 10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Additional Information                                                       | 89 |
| Item 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Quantitative and Qualitative Disclosures About Market Risk                   | 108 |
| Item 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Description of Securities Other than Equity Securities                       | 110 |
|  PART II                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Item 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Defaults, Dividend Arrearages and Delinquencies                              | 111 |
| Item 14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Material Modifications to the Rights of Security Holders and Use of Proceeds | 111 |
| Item 15.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Controls and Procedures                                                      | 112 |
| Item 16A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Audit Committee Financial Expert.                                            | 112 |
| Item 16B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Code of Ethics                                                               | 113 |
| Item 16C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Principal Accountant Fees and Services                                       | 113 |
| Item 16D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Exemptions from the Listing Standards for Audit Committees                   | 114 |
| Item 16E.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 114 |
| Item 16F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Change in Registrant’s Certifying Accountant                           | 114 |
| Item 16G.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Corporate Governance                                                         | 114 |
|  PART III                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Item 17.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Financial Statements                                                         | 114 |
| Item 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Financial Statements                                                         | 114 |
| Item 19.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Exhibits                                                                     | 115 |
| Index to Financial Statements                                                                                                                     | F-1                                                                          |

----

Identity of Directors, Senior Management and Advisers.

Key Information.

|                                                                                                                                                                                                                                                                                                                                                                                   |   | Year Ended December 31,                            |                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|----------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                   |   | 2005                                               |                       |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   | (U.S. dollars in thousands, except per share data) |                       |
| OPERATING DATA:                                                                                                                                                                                                                                                                                                                                                                        |   |                                               |                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                                                                                                                                                                                                                                                                                               |   |                                               |                       |   |   |   |   |   |   |   |   |   |   |   |   |
|      Products                                                              |   | $                                                  | 206,355                    |   |   | $ | 261,098 |   |   | $ | 316,888 |   |   | $ | 351,680 |   |   | $ | 281,783 |   |
|       Services                                                        |   |                                               | 104,755                    |   |   |   | 148,546 |   |   |   | 200,486 |   |   |   | 272,482 |   |   |   | 301,332 |   |
| Total revenues                                                                                      |   |                                               | 311,110                    |   |   |   | 409,644 |   |   |   | 517,374 |   |   |   | 624,162 |   |   |   | 583,115 |   |
| Cost of revenues                                                                                                                                                                                                                                                                                                                                                                       |   |                                               |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       Products                                                        |   |                                               | 67,543                     |   |   |   | 84,675 |   |   |   | 89,373 |   |   |   | 95,861 |   |   |   | 88,030 |   |
|       Services                                                        |   |                                               | 68,683                     |   |   |   | 89,539 |   |   |   | 116,969 |   |   |   | 142,885 |   |   |   | 149,175 |   |
| Total cost of revenues                                                                              |   |                                               | 136,226                    |   |   |   | 174,214 |   |   |   | 206,342 |   |   |   | 238,746 |   |   |   | 237,205 |   |
| Gross profit                                                                                                                                                                                                                                                                                                                                                                           |   |                                               | 174,884                    |   |   |   | 235,430 |   |   |   | 311,032 |   |   |   | 385,416 |   |   |   | 345,910 |   |
| Operating expenses:                                                                                                                                                                                                                                                                                                                                                                    |   |                                               |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development, net                                                                                                                                                                                                                                                                                                                                                          |   |                                               | 30,896                     |   |   |   | 44,880 |   |   |   | 59,632 |   |   |   | 78,445 |   |   |   | 77,382 |   |
| Selling and marketing                                                                                                        |   |                                               | 72,829                     |   |   |   | 95,190 |   |   |   | 120,592 |   |   |   | 147,879 |   |   |   | 141,526 |   |
| General and administrative                                                                                                   |   |                                               | 37,742                     |   |   |   | 60,463 |   |   |   | 85,089 |   |   |   | 97,378 |   |   |   | 72,791 |   |
| Amortization of acquired intangible assets                                                                                                                                                                                                                                                                                                                                             |   |                                               | 1,331                      |   |   |   | 4,918 |   |   |   | 9,175 |   |   |   | 14,493 |   |   |   | 16,012 |   |
| In process research and development write-off                                                                                                                                                                                                                                                                                                                                          |   |                                               | -                          |   |   |   | 12,882 |   |   |   | 3,710 |   |   |   | - |   |   |   | - |   |
| Settlement and related expenses                                                                                                                                                                                                                                                                                                                                                        |   |                                               | -                          |   |   |   | - |   |   |   | - |   |   |   | 9,870 |   |   |   | - |   |
| Total operating expenses                                                                            |   |                                               | 142,798                    |   |   |   | 218,333 |   |   |   | 278,198 |   |   |   | 348,065 |   |   |   | 307,711 |   |
| Operating income                                                                                    |   |                                               | 32,086                     |   |   |   | 17,097 |   |   |   | 32,834 |   |   |   | 37,351 |   |   |   | 38,199 |   |
| Financial income, net                                                                               |   |                                               | 5,398                      |   |   |   | 13,272 |   |   |   | 14,824 |   |   |   | 11,289 |   |   |   | 7,712 |   |
| Other income (expenses), net                                                                        |   |                                               | (13                        | ) |   |   | 623 |   |   |   | (24 | ) |   |   | (53 | ) |   |   | (115 | ) |
| Income before taxes on income                                                                       |   |                                               | 37,471                     |   |   |   | 30,992 |   |   |   | 47,634 |   |   |   | 48,587 |   |   |   | 45,796 |   |
| Taxes on income                                                                                     |   |                                               | 902                        |   |   |   | 8,591 |   |   |   | 10,254 |   |   |   | 9,480 |   |   |   | 3,040 |   |
| Net income                                                                                          |   |                                               | 36,569                     |   |   |   | 22,401 |   |   |   | 37,380 |   |   |   | 39,107 |   |   |   | 42,756 |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                             |   | $                                                  | 36,569                     |   |   | $ | 22,401 |   |   | $ | 37,380 |   |   | $ | 39,107 |   |   | $ | 42,756 |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                                               |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                                                                                                                                                                                                                                                                                                                                                               |   | $                                                  | 0.95                       |   |   | $ | 0.45 |   |   | $ | 0.69 |   |   | $ | 0.65 |   |   | $ | 0.70 |   |
| Weighted average number of shares used in    computing basic earnings per share (in thousands)                                                                                                                                                                                                                                                                               |   |                                               |      38,242 |   |   |   |   49,572 |   |   |   |   53,921 |   |   |   | 60,088 |   |   |   | 61,395 |   |

| Diluted earnings per share                                                                                 |   | $      | 0.89          |   |   | $      | 0.43                 |   |   | $      | 0.67          |   |   | $      | 0.64   |   |   | $      | 0.68   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|----------------------|--------|--------|--------|---------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Weighted average number of shares used in    computing diluted earnings per share (in thousands) |   |   |   41,292 |   |   |   |     52,002 |   |   |   |   55,926 |   |   |   | 61,268 |   |   |   | 62,490 |   |

|                                                                                                                                                                                                                                                                                                                                                                 |   | At December 31, |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|
|                                                                                                                                                                                                                                                                                                                                                                 |   | 2005            |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |   | 2009 |
|                                                                                                                                                                                                                                                                                                                                                                 |   |            |
| BALANCE SHEET DATA:                                                                                                                                                                                                                                                                                                                                                  |   |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital                                                                   |   | $               | 274,708 |   |   | $ | 111,800 |   |   | $ | 152,883 |   |   | $ | 217,511 |   |   | $ | 184,460 |   |
| Total assets                                                                      |   |            | 617,250 |   |   |   | 784,344 |   |   |   | 1,192,334 |   |   |   | 1,283,015 |   |   |   | 1,399,677 |   |
| Total debt                                                                        |   |            | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Shareholders’ equity                                                        |   |            | 487,041 |   |   |   | 569,574 |   |   |   | 903,794 |   |   |   | 970,822 |   |   |   | 1,062,754 |   |

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Information on the Company.

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| ● | Streamline and improve contact center operations, focusing on its agent and enterprise performance; |
|---------|-----------------------------------------------------------------------------------------------------|

| ● | monitor and improve contact center business performance and customer satisfaction related processes; |
|---------|------------------------------------------------------------------------------------------------------|

| ● | comply with regulations and policies as they pertain to capturing, archiving, and retrieving of customer interactions. |
|---------|------------------------------------------------------------------------------------------------------------------------|

| ● | identify training requirements and other necessary improvements; |
|---------|------------------------------------------------------------------|

| ● | allocate the appropriate workforce level and skills to optimize customer service; and |
|---------|---------------------------------------------------------------------------------------|

----

----

| Products                           | Markets Served | Purpose                                                                                                                                                                                                                                                                                     |
|------------------------------------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |           |                                                                                                                                                                                                                                                                                        |
| NICE SmartCenter                   | Enterprise     | Leverages the synergies of the combined capabilities of NICE Perform, NICE Quality Management, NICE Interaction Analytics, NICE Feedback, IEX TotalView and Performance Manager, as detailed below.                                                                                         |
|                               |           |                                                                                                                                                                                                                                                                                        |
| NICE Perform Interaction Recording | Enterprise     | Records customer interactions with contact center agents, financial trading floors, investment banking and enterprises, with a separate suite of applications for contact centers and investment banking, including for organizations that have a relatively small number of input channels |
|                               |           |                                                                                                                                                                                                                                                                                        |
| NICE Perform eXpress (NPX)         | Enterprise     | Brings the capabilities of Nice Perform into a single box, low TCO solution based on commercial hardware for small businesses or small systems.                                                                                                                                             |
|                               |           |                                                                                                                                                                                                                                                                                        |
| NICE Quality Management            | Enterprise     | Delivers comprehensive tools for implementing a multifaceted quality program encompassing agents, supervisors, evaluators and managers, and the ability to improve the quality and effectiveness of customer interactions in contact centers                                                |

----

| NICE Interaction Analytics       | Enterprise              | Utilizes a multi-dimensional analysis approach to analyze customer interactions across communication channels and provide automated business insight and root cause analysis based on speech analytics, E-mail and chat analysis, call flow analysis, screen content analysis and integration with CRM data                                                                                                                                                             |
|----------------------------------|-------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NICE Real-Time Guidance     | Enterprise              | Leverages Interaction Analytics in order to provide “next best action” recommendations to the agent in real-time during a phone or chat interaction with a customer, popping up contextually relevant instructions to the agent within call-out windows.                                                                                                                                                                                          |
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NICE Packaged Business Solutions | Enterprise              | A comprehensive set of out-of-the-box solutions designed to address common contact center challenges, including Customer Churn Reduction, Sales Effectiveness, Customer Experience, Marketing Effectiveness, Collections Optimization, Quality Optimization, such as First Contact Resolution and Average Handling Time. The Packaged Business solutions are designed to provide immediate value, reduce deployment time and significantly improve return on investment |
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NICE Feedback                    | Enterprise              | Advanced solution for collecting real-time customer feedback after a call or any other type of interaction with the organization. It enables businesses to enhance customer satisfaction, calibrate quality measurements and optimize processes                                                                                                                                                                                                                         |
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| NICE IEX Workforce Management    | Enterprise and Security | Forecasts customer interactions, schedules agents with appropriate skills to manage and optimize level of customer service and resources, measures agent and team performance and supports managing overall contact center performance                                                                                                                                                                                                                                  |
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Performance Manager              | Enterprise              | Maps enterprise business objectives to group and individual goals; tracks and reports performance against these goals                                                                                                                                                                                                                                                                                                                                                   |
|                             |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

----

| Network Embedded Logger              | Enterprise                                                                                             | Offers a Linux based VoIP Logger embedded in Cisco routers, suitable for branch recording with NICE Perform                                                                                                                                                                                                                                                                                                                                                                                              |
|--------------------------------------|--------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| NiceCall Focus III                   | Enterprise andSecurity                                                                                 | Provides a competitively priced voice recording system for organizations that have a relatively small number of input channels and a cost-effective solution for branch recording  (TDM only) with centralized storage                                                                                                                                                                                                                                                                         |
|                                 |                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Actimize Fraud Prevention Suite | Enterprise - Financial Institutions (securities, banking)                                    | A comprehensive suite of focused cross-channel fraud prevention solutions, available individually or as an integrated whole, used in both real-time and batch processing to detect and prevent the following types of fraud:●  Remote banking (web, phone and more)●  Remote brokerage●  Commercial & retail payments (wire, ACH and more)●  Employee fraud●  Credit and ATM/debit card●  Deposit fraud●  Rogue trading |
|                                 |                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Actimize Anti-Money Laundering Suite | Enterprise - Financial Institutions(securities, insurance, banking), Government Regulatory Bodies | An end-to-end suite of solutions that are available individually or as an integrated whole used to monitor and identify suspicious activities for customers and facilitate regulatory compliance processes.  The solutions monitor for the following:●  Suspicious transactions●  Know Your Customer and ongoing customer due diligence●  Sanctions lists and terrorist financing matches                                                                     |
|                                 |                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Actimize Brokerage Compliance Suite  | Enterprise - Financial Institutions  (securities), Government Regulatory Bodies         | Packages and solutions that enable firms to effectively adhere to global regulatory requirements and organizational standards.  By monitoring a comprehensive range of financial products to prevent, detect, and deter non-compliant activities and improve risk and compliance performance in areas such as:●  Institutional surveillance●  Retail surveillance●  Employee surveillance●  MiFID compliance                                       |

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| Actimize Enterprise Risk Case Manager | Enterprise - Financial Institutions (securities, insurance, banking), Government Regulatory Bodies | A centralized platform for holistic case and alert management that enables an enterprise-wide approach to risk and compliance operations management. The solution consolidates information from any existing detection system into a single, user-friendly application for managing alerts, cases, investigations, regulatory reporting, financial losses, oversight, and more |
|---------------------------------------|----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| Mirra IV                              | Enterprise and Security                                                                            | Provides small recording system that is suited to simple recording applications in which it can record up to 48 channels of voice traffic from a wide variety of analog and digital interfaces                                                                                                                                                                                 |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NICE Inform                           | Security                                                                                           | Provides information management solution for comprehensive management of multimedia interactions for security command and control centers, enables effective management of multimedia incident information from various sources, for faster incident reconstruction, greater insight and improved response                                                                     |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceVision Net                        | Security                                                                                           | Provides a complete solution for IP video security, including encoders, decoders and network video recorders                                                                                                                                                                                                                                                                   |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceVision ControlCenter              | Security                                                                                           | Provides an advanced control room management and network-based digital video matrix                                                                                                                                                                                                                                                                                            |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceVision Analytics                  | Security                                                                                           | Provides a set of video content analytics applications for automated detection of threats, safety and operational related events                                                                                                                                                                                                                                               |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceVision Digital                    | Security                                                                                           | Provides a portfolio of digital video recorders for different capacities and performance requirements                                                                                                                                                                                                                                                                          |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceVision SafeRoute                  | Security                                                                                           | Provides a solution for mobile video surveillance onboard public transport vehicles                                                                                                                                                                                                                                                                                            |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NICE Situator                         | Security                                                                                           | Solidifies data from desperate security systems to deliver common operational picture and rapid and collaborated response                                                                                                                                                                                                                                                      |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| FAST alpha Silver                     | Security                                                                                           | Provides high quality digital video monitoring and recording solution for large to mid-size applications                                                                                                                                                                                                                                                                       |
|                                  |                                                                                               |                                                                                                                                                                                                                                                                                                                                                                           |
| NiceTrack                             | Security                                                                                           | Provides interception, delivery, monitoring, collection and advanced analysis of telecommunication interactions                                                                                                                                                                                                                                                                |

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| Name of Subsidiary                            |   | Country of Incorporation or Residence |   | Percentage of Ownership Interest |
|-----------------------------------------------|--------|---------------------------------------|--------|----------------------------------|
| Nice Systems Australia PTY Ltd.               |   | Australia                             |   | 100%                             |
| NICE Systems Technologies Brasil LTDA         |   | Brazil                                |   | 100%                             |
| NICE Systems Canada Ltd.                      |   | Canada                                |   | 100%                             |
| Nice Systems S.A.R.L.                         |   | France                                |   | 100%                             |
| NICE Systems GmbH                             |   | Germany                               |   | 100%                             |
| NICE APAC Ltd.                                |   | Hong Kong                             |   | 100%                             |
| NICE Systems Kft                              |   | Hungary                               |   | 100%                             |
| Nice Interactive Solutions India Private Ltd. |   | India                                 |   | 100%                             |
| Nice Technologies Ltd.                        |   | Ireland                               |   | 100%                             |
| Actimize Ltd.                                 |   | Israel                                |   | 100%                             |
| STS Software Systems (1993) Ltd.              |   | Israel                                |   | 100%                             |
| Actimize Japan KK Limited                     |   | Japan                                 |   | 100%                             |
| Nice Japan Ltd.                               |   | Japan                                 |   | 100%                             |
| Fortent Japan KK                              |   | Japan                                 |   | 100%                             |
| IEX Corporation BV                            |   | Netherlands                           |   | 100%                             |
| Nice Systems (Singapore) Pte. Ltd.            |   | Singapore                             |   | 100%                             |
| Nice Switzerland AG                           |   | Switzerland                           |   | 100%                             |
| Actimize UK Limited                           |   | United Kingdom                        |   | 100%                             |
| Fortent Limited                               |   | United Kingdom                        |   | 100%                             |
| NICE CTI Systems UK Ltd.                      |   | United Kingdom                        |   | 100%                             |
| Actimize Inc.                                 |   | United States                         |   | 100%                             |
| Fortent Americas, Inc.                        |   | United States                         |   | 100%                             |
| IEX Corporation                               |   | United States                         |   | 100%                             |
| Nice Systems Inc.                             |   | United States                         |   | 100%                             |
| Nice Systems Latin America, Inc.              |   | United States                         |   | 100%                             |

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| ● | Ra’anana Central Offices, which occupies approximately 140,000 square feet of space, pursuant to a lease expiring in 2013.  The annual rent and maintenance fee for the facility is approximately $3.4 million, paid partially in NIS linked to the Israeli consumer price index and partially linked to the U.S. consumer price index. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | North Ra’anana NICE offices, which occupies approximately 90,000 square feet, pursuant to a lease expiring in 2013. The annual rent and maintenance fee for this additional facility is approximately $2.28 million, paid in NIS and linked to the Israeli consumer price index. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | North Ra’anana Actimize offices, which occupies approximately 30,000 square feet, pursuant to a lease expiring in September 2011. The annual rent and maintenance fee for this facility is approximately $650,000, paid in NIS and linked to the Israeli consumer price index. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Our North American headquarters in Rutherford, New Jersey, which occupy approximately 36,700 square feet. We also have two additional offices in New York, which occupy approximately 13,000 square feet and 15,000 square feet, respectively; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Our office in Denver, Colorado, which occupies approximately 30,775 square feet. The lease for this office expires during September 2010 and we have leased a new office in Denver, which occupies approximately 27,063 square feet, with the lease becoming effective as of April 2010; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | ● | Our office in Richardson, Texas, which occupies approximately 37,564 square feet. |
|--------|---------|-----------------------------------------------------------------------------------|

|   | ● | Our office in Southampton, UK, which occupies approximately 23,428 square feet; and |
|--------|---------|-------------------------------------------------------------------------------------|

|   | ● | Our office in Hong Kong, which occupies approximately 9,506 square feet. |
|--------|---------|--------------------------------------------------------------------------|

Unresolved Staff Comments.

----

----

|   | ● | Revenue recognition |
|--------|---------|---------------------|

|   | ● | Allowance for doubtful accounts |
|--------|---------|---------------------------------|

|   | ● | Inventory valuation |
|--------|---------|---------------------|

|   | ● | Impairment of long-lived assets |
|--------|---------|---------------------------------|

|   | ● | Taxes on income |
|--------|---------|-----------------|

|   | ● | Contingencies |
|--------|---------|---------------|

|   | ● | Business combination |
|--------|---------|----------------------|

|   | ● | Stock-based compensation |
|--------|---------|--------------------------|

|   | ● | Valuation of investment in marketable securities |
|--------|---------|--------------------------------------------------|

----

----

----

----

----

|   | ● | Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 2 – Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 3 – Valuations based on unobservable inputs which are supported by little or no market activity and significant to the overall fair value measurement. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2007   |   |   | 2008   |   |   | 2009   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Revenues                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |
| Products                                                                                                                                                     |   |   | 61.2   | %      |   |   | 56.3   | %      |   |   | 48.3 | % |
| Services                                                                                                                                                     |   |   | 38.8   |   |   |   | 43.7   |   |   |   | 51.7 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 100.0  |   |   |   | 100.0  |   |   |   | 100.0 |   |
| Cost of revenues                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Products*                                                                                                                                                    |   |   | 28.2   |   |   |   | 27.3   |   |   |   | 31.2 |   |
| Services*                                                                                                                                                    |   |   | 58.3   |   |   |   | 52.4   |   |   |   | 49.5 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 39.9   |   |   |   | 38.3   |   |   |   | 40.7 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross Profit                                                                           |   |   | 60.1   |   |   |   | 61.7   |   |   |   | 59.3 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and development, net                                                                                                                                                                                                                                                                                                                                                                                |   |   | 11.5   |   |   |   | 12.6   |   |   |   | 13.3 |   |
| Selling and marketing                                                                                                                                             |   |   | 23.3   |   |   |   | 23.7   |   |   |   | 24.3 |   |
| General and administrative                                                                                                                                        |   |   | 16.5   |   |   |   | 15.5   |   |   |   | 12.5 |   |
| Amortization of acquired Intangibles                                                                                                                              |   |   | 1.8    |   |   |   | 2.3    |   |   |   | 2.7 |   |
| In process research and development write-off                                                                                                                                                                                                                                                                                                                                                                |   |   | 0.7    |   |   |   | -      |   |   |   | - |   |
| Settlement and related expenses                                                                                                                                                                                                                                                                                                                                                                              |   |   | -      |   |   |   | 1.6    |   |   |   | - |   |
| Total operating expenses                                                               |   |   | 53.8   |   |   |   | 55.7   |   |   |   | 52.8 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                                                                       |   |   | 6.3    |   |   |   | 6.0    |   |   |   | 6.5 |   |
| Financial income, net                                                                  |   |   | 2.9    |   |   |   | 1.8    |   |   |   | 1.3 |   |
| Other income, net                                                                      |   |   | -      |   |   |   | -      |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before taxes                                                                    |   |   | 9.2    |   |   |   | 7.8    |   |   |   | 7.8 |   |
| Taxes on income                                                                        |   |   | 2.0    |   |   |   | 1.5    |   |   |   | 0.5 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                             |   |   | 7.2    |   |   |   | 6.3    |   |   |   | 7.3 |   |

----

|             |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|             |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|             |   | 2008                       |   |   | 2009   |   |   | Dollar Change |   |   | Percentage Change |   |
|             |   |                       |   |   |   |   |   |          |   |   |   |   |
| Product Revenues |   | $                          | 351.7  |   |   | $      | 281.8  |          |   |   | (69.9 | ) |   |   | (19.9 | ) |
| Service Revenues |   |                       | 272.5  |   |   |   | 301.3  |          |   |   | 28.8 |   |   |   | 10.6 |   |
| Total Revenues   |   | $                          | 624.2  |   |   | $      | 583.1  |          |   |   | (41.1 | ) |   |   | (6.6 | ) |

|                                                                         |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                         |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                                                                         |   | 2008                       |   |   | 2009   |   |   | Dollar Change |   |   | Percentage Change |   |
|                                                                         |   |                       |   |   |   |   |   |          |   |   |   |   |
| United States, Canada and Central and South America (“Americas”) |   | $                          | 347.4  |   |   | $      | 365.8  |          |   | $ | 18.4 |   |   |   | 5.3 | % |
| Europe, the Middle East and Africa (“EMEA”)                      |   |                       | 188.5  |   |   |   | 150.4  |          |   |   | (38.1 | ) |   |   | (20.2 | ) |
| Sales to Asia-Pacific (“APAC”)                                   |   |                       | 88.3   |   |   |   | 66.9   |          |   |   | (21.4 | ) |   |   | (24.2 | ) |
| Total Revenues                                                               |   | $                          | 624.2  |   |   | $      | 583.1  |          |   | $ | (41.1 | ) |   |   | (6.6 | ) |

----

|                               |   |                       |   |   |   |   |   |          |   |   |             |   |
|------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|--------|------------------|--------|
|                               |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|                               |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                               |   | 2008                       |   |   | 2009   |   |   | Dollar Change |   |   | PercentageChange |   |
|                               |   |                       |   |   |   |   |   |          |   |   |             |   |
| Cost of Product Revenues           |   | $                          | 95.9   |   |   | $      | 88.0   |          |   |   | (7.9             | )      |   |   | (8.2 | )% |
| Cost of Service Revenues           |   |                       | 142.9  |   |   |   | 149.2  |          |   |   | 6.3              |   |   |   | 4.4 | % |
|                               |   |                       |   |   |   |   |   |          |   |   |             |   |   |   |   |   |
|   Total Cost of Revenues |   | $                          | 238.8  |   |   | $      | 237.2  |          |   |   | (1.6             | )      |   |   | (0.6 | )% |

|                                                                                                                                                                                                                                                                                                                                                                                 |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                 |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   | 2008                       |   |   | 2009   |   |   | Dollar Change |   |   | PercentageChange |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   |                       |   |   |   |   |   |          |   |   |   |   |
| Gross Profit on Product Revenues                                                             |   | $                          | 255.8  |   |   | $      | 193.8  |          |   |   | (62.0 | ) |   |   | (24.2 | )% |
|   as a percentage of product revenues                                                                                                                                                                                                                                                                                                                                      |   |                       | 72.7   | %      |   |   | 68.8   | %             |   |   |   |   |   |   |   |   |
| Gross Profit on Service Revenue                                                              |   |                       | 129.6  |   |   |   | 152.1  |          |   |   | 22.5 |   |   |   | 17.4 |   |
|   as a percentage of service revenues                                                                                                                                                                                                                                                                                                                                      |   |                       | 47.6   | %      |   |   | 50.5   | %             |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   |                       |   |   |   |   |   |          |   |   |   |   |   |   |   |   |
|    Total Gross Profit                                                         |   | $                          | 385.4  |   |   | $      | 345.9  |          |   |   | (39.5 | ) |   |   | (10.2 | )% |
|          as a percentage of total revenues                                                                                                                                                                                                                                                                                              |   |                       | 61.7   | %      |   |   | 59.3   | %             |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                        |   | Years Ended December 31,   |   |   |   |   |   |         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                        |   | (U.S. dollars in millions) |   |   |   |   |   |         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2008                       |   |   | 2009   |   |   | DollarChange |   |   | PercentageChange |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |   |                       |   |   |   |   |   |         |   |   |   |   |
|    Research and development, net                                                           |   | $                          | 78.4   |   |   |   | 77.4   |         |   | $ | (1.0 | ) |   |   | (1.3 | )% |
|    Selling and marketing                                                                   |   |                       | 147.9  |   |   |   | 141.5  |         |   |   | (6.4 | ) |   |   | (4.3 | ) |
|    General and administrative                                                              |   |                       | 97.4   |   |   |   | 72.8   |         |   |   | (24.6 | ) |   |   | (25.2 | ) |
|    Amortization of acquired intangible assets                                                                                                                                                                                                                                                                                                                                                |   |                       | 14.5   |   |   |   | 16.0   |         |   |   | 1.5 |   |   |   | 10.3 |   |
| Settlement and related expenses                                                                                                                                                                                                                                                                                                                                                                             |   | $                          | 9.9    |   |   |   | -      |         |   | $ | (9.9 | ) |   |   | (100 | )% |

|                                                                                                                                                                                                                                                                                                                                                                                           |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                           |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   | 2008                       |   |   | 2009   |   |   | Dollar Change |   |   | Percentage Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |                       |   |   |   |   |   |          |   |   |   |   |
|    Financial income, net                                                                |   | $                          | 11.3   |   |   | $      | 7.7    |          |   | $ | (3.6 | ) |   |   | (31.9 | )% |
|    Other income (expenses), net                                                         |   |                       | (0.1   | )      |   |   | (0.1   | )             |   |   | - |   |   |   | - |   |

----

----

|             |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|             |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|             |   | 2007                       |   |   | 2008   |   |   | Dollar Change |   |   | Percentage Change |   |
|             |   |                       |   |   |   |   |   |          |   |   |   |   |
| Product Revenues |   | $                          | 316.9  |   |   | $      | 351.7  |          |   | $ | 34.8 |   |   |   | 11.0 | % |
| Service Revenues |   |                       | 200.5  |   |   |   | 272.5  |          |   |   | 72.0 |   |   |   | 35.9 |   |
| Total Revenues   |   | $                          | 517.4  |   |   | $      | 624.2  |          |   | $ | 106.8 |   |   |   | 20.6 | % |

----

|                               |   |                       |   |   |   |   |   |          |   |   |             |   |
|------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|--------|------------------|--------|
|                               |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|                               |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                               |   | 2007                       |   |   | 2008   |   |   | Dollar Change |   |   | PercentageChange |   |
|                               |   |                       |   |   |   |   |   |          |   |   |             |   |
| Cost of Product Revenues           |   | $                          | 89.4   |   |   | $      | 95.9   |          |   | $      | 6.5              |   |   |   | 7.3 | % |
| Cost of Service Revenues           |   |                       | 116.9  |   |   |   | 142.9  |          |   |   | 26.0             |   |   |   | 22.2 |   |
|                               |   |                       |   |   |   |   |   |          |   |   |             |   |   |   |   |   |
|   Total Cost of Revenues |   | $                          | 206.3  |   |   | $      | 238.8  |          |   | $      | 32.5             |   |   |   | 15.8 | % |

|                                                                                                                                                                                                                                                                                                                                                                                 |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                 |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   | 2007                       |   |   | 2008   |   |   | Dollar Change |   |   | PercentageChange |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   |                       |   |   |   |   |   |          |   |   |   |   |
| Gross Profit on Product Revenues                                                             |   | $                          | 227.5  |   |   | $      | 255.8  |          |   | $ | 28.3 |   |   |   | 12.4 | % |
|   as a percentage of product revenues                                                                                                                                                                                                                                                                                                                                      |   |                       | 71.8   | %      |   |   | 72.7   | %             |   |   |   |   |   |   |   |   |
| Gross Profit on Service Revenue                                                              |   |                       | 83.5   |   |   |   | 129.6  |          |   |   | 46.1 |   |   |   | 55.2 |   |
|   as a percentage of service revenues                                                                                                                                                                                                                                                                                                                                      |   |                       | 41.7   | %      |   |   | 47.6   | %             |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                 |   |                       |   |   |   |   |   |          |   |   |   |   |   |   |   |   |
|    Total Gross Profit                                                         |   | $                          | 311.0  |   |   | $      | 385.4  |          |   | $ | 74.4 |   |   |   | 23.9 | % |
|          as a percentage of total revenues                                                                                                                                                                                                                                                                                              |   |                       | 60.1   | %      |   |   | 61.7   | %             |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                        |   | Years Ended December 31,   |      |   |   |   |   |         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|--------|--------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                        |   | (U.S. dollars in millions) |      |   |   |   |   |         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2007                       |      |   | 2008   |   |   | DollarChange |   |   | PercentageChange |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |   |                       |      |   |   |   |   |         |   |   |   |   |
|    Research and development, net                                                           |   | $                          | 59.6      |   |   | $      | 78.4   |         |   | $ | 18.8 |   |   |   | 31.5 | % |
|    Selling and marketing                                                                   |   |                       | 120.6     |   |   |   | 147.9  |         |   |   | 27.3 |   |   |   | 22.6 |   |
|    General and administrative                                                              |   |                       | 85.1      |   |   |   | 97.4   |         |   |   | 12.3 |   |   |   | 14.5 |   |
|    Amortization of acquired intangible assets                                                                                                                                                                                                                                                                                                                                                |   |                       |  9.2 |   |   |   | 14.5   |         |   |   | 5.3 |   |   |   | 57.6 |   |
| In process research and development write-off                                                                                                                                                                                                                                                                                                                                                               |   |                       |  3.7 |   |   |   | -      |         |   |   | (3.7 | ) |   |   | (100.0 | ) |
| Settlement and related expenses                                                                                                                                                                                                                                                                                                                                                                             |   | $                          | -         |   |   | $      | 9.9    |         |   | $ | 9.9 |   |   |   | 100 | % |

|                                                                                                                                                                                                                                                                                                                                                                                    |   | Years Ended December 31,   |   |   |   |   |   |          |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                    |   | (U.S. dollars in millions) |   |   |   |   |   |          |   |
|                                                                                                                                                                                                                                                                                                                                                                                    |   | 2007                       |   |   | 2008   |   |   | Dollar Change |   |   | Percentage Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                    |   |                       |   |   |   |   |   |          |   |   |   |   |
|    Financial income, net                                                         |   | $                          | 14.8   |   |   | $      | 11.3   |          |   | $ | (3.5 | ) |   |   | (23.6 | )% |
|    Other income, net                                                             |   |                       | -      |   |   |   | 0.1    |          |   |   | 0.1 |   |   |   |   |   |

----

----

----

----

|                               |   | Payments Due by Period |   |
|------------------------------------|--------|------------------------|--------|
| Contractual Obligations            |   | Total                  |   |   | Less than 1 year |   |   | 1- 3 years |   |   | 3-5 years |   |   | More than 5 years |   |
| Operating Leases                   |   |                   | 45,664 |   |   |   | 16,797 |   |   |   | 22,319 |   |   |   | 4,857 |   |   |   | 1,671 |   |
| Unconditional Purchase Obligations |   |                   | 2,658  |   |   |   | 2,658 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Severance Pay*                     |   |                   | 22,979 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Uncertain Income Tax Positions **  |   |                   | 31,896 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total Contractual Cash Obligations |   |                   | 71,281 |   |   |   | 19,455 |   |   |   | 22,319 |   |   |   | 4,857 |   |   |   | 1,671 |   |

|                                     |   |                    |   |   | Amount of Commitment Expiration Per Period |   |
|------------------------------------------|--------|-------------------------|--------|--------|--------------------------------------------|--------|
| Other Commercial Commitments             |   | Total Amounts Committed |   |   | Less than 1 year                           |   |   | 1- 3 years |   |   | 3-5 years |   |   | More than 5 years |   |
| Guarantees – continuing operations |   |                    | 46,984 |   |                                       |   | 17,214 |   |   |   | 832 |   |   |   | 824 |   |   |   | 28,114 |   |

|  * | Severance pay relates to accrued obligation to employees as required under the labor laws. These obligation are payable only upon termination, retirement or death of the respective employee. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  ** | Uncertain income tax positions under ASC 740 (Formerly FASB Interpretation No. 48) are due upon settlement and we are unable to reasonably estimate the ultimate amount or timing of settlement. See Note 13(h) of our Consolidated Financial Statements for further information regarding our liability under ASC 740. |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

Directors, Senior Management and Employees.

|                   |      |                                                                 |
|------------------------|-----------|----------------------------------------------------------------------|
| Name                   |  Age | Position                                                             |
| Ron Gutler (1)(2) | 52        | Chairman of the Board of Directors                                   |
| Joseph Atsmon(1)(3)    | 62        | Vice-Chairman of the Board of Directors                              |
| Rimon Ben-Shaoul(2)    | 65        | Director                                                             |
| Yoseph Dauber(2)(3)    | 73        | Director                                                             |
| Dan Falk(1)(2)(3)(4)   | 65        | Director                                                             |
| John Hughes(2)         | 58        | Director                                                             |
| Yocheved Dvir(1)(3)(4) | 57        | Director                                                             |
| David Kostman          | 45        | Director                                                             |
| Zeev Bregman           | 48        | President and Chief Executive Officer                                |
| Udi Ziv                | 43        | President of the Enterprise Products Group and Chief Product Officer |
| Israel Livnat          | 59        | Corporate Vice President & President, Security Group             |
| David Sosna            | 41        | Chief Executive Officer, Actimize Ltd.                               |
| Dafna Gruber           | 45        | Corporate Vice President and Chief Financial Officer                 |
| Yechiam Cohen          | 53        | Corporate Vice President, General Counsel and Corporate Secretary    |
| Eran Porat             | 47        | Corporate Vice President, Finance                                    |
| Eran Liron             | 42        | Corporate Vice President, Business Development                       |
| Dan Yalon              | 38        | Corporate Vice President, Strategy & Strategic Alliance          |
| Yochai Rozenblat       | 48        | President and Chief Executive Officer, Americas                      |
| Shlomi Cohen           | 45        | President of EMEA                                                    |
| Doron Ben-Sira         | 50        | President of NICE APAC                                               |

----

----

----

----

----

----

----

| · | 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 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                         |   | At December 31, |   |
|------------------------------|--------|-----------------|--------|
| Category of Activity         |   | 2007            |   |   | 2008 |   |   | 2009 |   |
|                         |   |            |   |   |   |   |   |   |   |
| Operations                   |   |            | 116    |   |   |   | 105 |   |   |   | 101 |   |
| Customer Support             |   |            | 724    |   |   |   | 852 |   |   |   | 966 |   |
| Sales & Marketing        |   |            | 450    |   |   |   | 492 |   |   |   | 530 |   |
| Research & Development   |   |            | 564    |   |   |   | 597 |   |   |   | 638 |   |
| General & Administrative |   |            | 318    |   |   |   | 358 |   |   |   | 361 |   |
| Total                   |   |            | 2,172  |   |   |   | 2,404 |   |   |   | 2,596 |   |
|                         |   |            |   |   |   |   |   |   |   |   |   |   |
| Geographic Location          |   |            |   |   |   |   |   |   |   |   |   |   |
| Israel                       |   |            | 923    |   |   |   | 1,014 |   |   |   | 1,086 |   |
| Americas                     |   |            | 811    |   |   |   | 864 |   |   |   | 942 |   |
| Europe                       |   |            | 301    |   |   |   | 355 |   |   |   | 373 |   |
| Asia Pacific                 |   |            | 137    |   |   |   | 171 |   |   |   | 195 |   |
| Total                   |   |            | 2,172  |   |   |   | 2,404 |   |   |   | 2,596 |   |

----

----

----

----

----

----

Major Shareholders and Related Party Transactions.

----

| Name and Address                                                                                   | Number of Shares    | Percent of Shares Beneficially Owned (1) |
|----------------------------------------------------------------------------------------------------|---------------------|------------------------------------------|
| Migdal Insurance and Financial Holdings Ltd.4 Efal Street, P.O. Box 3063Petach Tikva 49512, Israel | 3,338,606(2)        | 5.3%                                     |
|                                                                                               |                |                                     |
| The Phoenix Holding Ltd. and Excellence Investments Ltd.(3)                                        | 3,479,696 (4)       | 5.6%                                     |
|                                                                                               |                |                                     |
| Psagot Investment House Ltd.                                                                       |  3,529,680 (5) |  5.7%                               |

| (1) | Based upon 62,462,051 ordinary shares issued and outstanding on March 23, 2010. |
|-----|---------------------------------------------------------------------------------|

| (2) | Of which: (i) 3,076,633 ordinary shares are held for members of the public through, among others, provident funds, mutual funds, pension funds and insurance policies, which are managed by subsidiaries of Migdal Insurance and Financing Holdings Ltd., according to the following segmentation: 1,802,504 ordinary shares are held by profit participating life assurance accounts; 1,062,016 ordinary shares are held by provident funds and companies that manage provident funds and 210,458 ordinary shares are held by companies for the management of funds for joint investments in trusteeship, each of which subsidiaries operates under independent management and makes independent voting and investment decisions, and (ii) 212,113 are beneficially held for Migdal Insurance and Financing Holdings Ltd. own account (Nostro account). This information is based upon a Form 13G for the period ended December 31, 2009, filed by Migdal Insurance and Financing Holdings Ltd. with the SEC on February 16, 2010. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Based upon information provided to us by The Phoenix Holding Ltd. ("Phoenix") and Excellence Investments Ltd. ("Excellence") on March 1, 2010. Based on public information, we believe that Phoenix and Excellence are controlled by the Delek Group and Mr. Yitzhak Tshuva. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Of which: (i) 3,471,196 ordinary shares are held for members of the public through, among others, provident funds, pension funds and mutual funds, which are managed by subsidiaries of Excellence or Phoenix, according to the following segmentation: 815,028 ordinary shares are held by provident funds and pension funds of Excellence; 294,328 ordinary shares are held by mutual funds of Excellence; 1,335,688 ordinary shares are held by other investment vehicles of Excellence; 153,855 ordinary shares are held by provident funds and pension funds of Phoenix; and 872,297 ordinary shares are held by profit participating life assurance accounts of Phoenix, and (ii) 8,500 are beneficially held for Phoenix's own account (Nostro account). This information is based upon information provided to us by Phoenix and Excellence. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | These securities are held for members of the public through, among others, portfolio accounts, provident funds and mutual funds, which are managed by subsidiaries of Psagot Investment House Ltd., according to the following segmentation: 138,810 ordinary shares are held by Psagot Mutual Funds Ltd., 1,862,670 ordinary shares are held by Psagot Provident Funds Ltd., 506,236 ordinary shares are held by Psagot Exchange Traded Notes Ltd., and 1,021,964 ordinary shares are held by Psagot Securities Ltd. This information is based upon a Form 13G for the period ended December 31, 2009, filed by Psagot Investment House Ltd. with the SEC on March 28, 2010. Ron Gutler, our Chaiman of the Board, serves as a director of Psagot Securities Ltd. and Psagot Investment House Ltd., but does not hold shares in either of these entities. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Financial Information.

----

|   | · | Patent infringement lawsuit filed on July 20, 2004, by S.T.S. Software Systems Ltd. ("STS"), a wholly owned subsidiary of ours, in the U.S. District Court for the Southern District of New York, charging Witness Systems, Inc. ("Witness") with infringement of VoIP patents in the U.S.  The Court dismissed the claim and determined that Witness does not infringe the Company’s patents. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Patent infringement action filed on August 30, 2004, by Witness in the Federal Court for the Northern District of Georgia against NICE Systems, Inc. An additional patent infringement action was filed by Witness on January 19, 2006, in the Federal Court for the Northern District of Georgia against NICE and NICE Systems, Inc. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | New Patent infringement lawsuit filed on May 10, 2006, by NICE and NICE Systems, Inc. against Witness in the United States District Court for District of Delaware. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| Item 9. | The Offer and Listing. |
|---------|------------------------|

|           | ADSs   |   |
|----------------|--------|--------|
|           | High   |   |   | Low |   |
| Annual         |   |   |   |   |   |
|           |   |   |   |   |   |
| 2005           | $      | 25.05  |   |   | $ | 14.65 |   |
| 2006           |   | 33.41  |   |   |   | 21.55 |   |
| 2007           |   | 40.95  |   |   |   | 29.04 |   |
| 2008           |   | 35.87  |   |   |   | 16.11 |   |
| 2009           |   | 33.42  |   |   |   | 18.04 |   |
|           |   |   |   |   |   |   |   |
| Quarterly 2008 |   |   |   |   |   |   |   |
|           |   |   |   |   |   |   |   |
| First Quarter  | $      | 34.75  |   |   | $ | 24.90 |   |
| Second Quarter |   | 35.87  |   |   |   | 27.75 |   |
| Third Quarter  |   | 31.57  |   |   |   | 24.65 |   |
| Fourth Quarter |   | 27.45  |   |   |   | 16.11 |   |
|           |   |   |   |   |   |   |   |
| Quarterly 2009 |   |   |   |   |   |   |   |
|           |   |   |   |   |   |   |   |
| First Quarter  | $      | 25.79  |   |   | $ | 18.04 |   |
| Second Quarter |   | 27.18  |   |   |   | 21.19 |   |
| Third Quarter  |   | 32.29  |   |   |   | 21.79 |   |
| Fourth Quarter |   | 33.42  |   |   |   | 27.50 |   |

| Quarterly 2010 |   |   |   |
|----------------|--------|--------|--------|
|           |   |   |   |
| First Quarter  |   |   |   |

| Monthly                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |
| September 2009                                                                                                           | $      | 32.29  |   |   | $      | 28.75 |   |
| October 2009                                                                                                             |   | 33.42  |   |   |   | 29.33 |   |
| November 2009                                                                                                            |   | 30.88  |   |   |   | 27.50 |   |
| December 2009                                                                                                            |   | 31.84  |   |   |   | 29.68 |   |
| January 2010                                                                                                             |   | 34.30  |   |   |   | 28.99 |   |
| February 2010                                                                                                            |   | 31.44  |   |   |   | 28.22 |   |
| March 2010 (through March 30)                                                                                            |   | 33.97  |   |   |   | 30.14 |   |

----

|                          |   | Ordinary Shares |   |
|-------------------------------|--------|-----------------|--------|
|                          |   | High            |   |   | Low |   |
|                          |   | NIS             |   |   |  $ |   |   |  NIS |   |   |   | $ |   |
| Annual                        |   |            |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |
| 2005                          |   |            | 116.00 |   |   |   | 25.22 |   |   |   | 64.25 |   |   |   | 14.59 |   |
| 2006                          |   |            | 142.50 |   |   |   | 33.16 |   |   |   | 102.00 |   |   |   | 22.48 |   |
| 2007                          |   |            | 162.30 |   |   |   | 41.04 |   |   |   | 117.50 |   |   |   | 29.94 |   |
| 2008                          |   |            | 133.80 |   |   |   | 35.54 |   |   |   | 63.00 |   |   |   | 16.72 |   |
| 2009                          |   |            | 125.00 |   |   |   | 33.70 |   |   |   | 74.05 |   |   |   | 18.18 |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly 2008                |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter                 |   |            | 133.80 |   |   |   | 34.69 |   |   |   | 91.11 |   |   |   | 26.98 |   |
| Second Quarter                |   |            | 119.40 |   |   |   | 35.51 |   |   |   | 98.36 |   |   |   | 27.82 |   |
| Third Quarter                 |   |            | 112.40 |   |   |   | 32.02 |   |   |   | 84.00 |   |   |   | 23.86 |   |
| Fourth Quarter                |   |            | 95.50  |   |   |   | 25.28 |   |   |   | 63.00 |   |   |   | 17.52 |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly 2009                |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter            |   |            | 107.10 |   |   |   | 25.52 |   |   |   | 74.05 |   |   |   | 18.18 |   |
| Second Quarter                |   |            | 112.40 |   |   |   | 26.99 |   |   |   | 84.99 |   |   |   | 21.45 |   |
| Third Quarter                 |   |            | 120.80 |   |   |   | 32.31 |   |   |   | 86.00 |   |   |   | 21.70 |   |
| Fourth Quarter                |   |            | 125.00 |   |   |   | 33.70 |   |   |   | 105.20 |   |   |   | 27.74 |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly 2010                |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter                 |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |
| Monthly                       |   |
|                          |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September 2009                |   |            | 120.80 |   |   |   | 32.21 |   |   |   | 106.00 |   |   |   | 27.92 |   |
| October 2009                  |   |            | 125.00 |   |   |   | 33.70 |   |   |   | 110.20 |   |   |   | 29.26 |   |
| November 2009                 |   |            | 116.90 |   |   |   | 30.83 |   |   |   | 105.20 |   |   |   | 27.74 |   |
| December 2009            |   |            | 121.90 |   |   |   | 32.10 |   |   |   | 112.70 |   |   |   | 29.88 |   |
| January 2010                  |   |            | 124.80 |   |   |   | 33.89 |   |   |   | 107.00 |   |   |   | 28.73 |   |
| February 2010                 |   |            | 120.00 |   |   |   | 31.70 |   |   |   | 107.10 |   |   |   | 28.70 |   |
| March 2010 (through March 28) |   |            | 129.70 |   |   |   | 34.66 |   |   |   | 115.20 |   |   |   | 30.57 |   |

----

Additional Information

----

----

| · | the securities issued amount to twenty percent or more of the company’s outstanding voting rights before the issuance; |
|--------|------------------------------------------------------------------------------------------------------------------------------|

| · | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
|--------|-------------------------------------------------------------------------------------------------------------------------|

| · | the transaction will increase the relative holdings of a shareholder that holds five percent or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than five percent of the company’s outstanding share capital or voting rights. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | any amendment to the articles of association; |
|--------|-----------------------------------------------|

| · | an increase of the company’s authorized share capital; |
|--------|--------------------------------------------------------------|

| · | a merger; or |
|--------|--------------|

| · | approval of interested party transactions which require shareholder approval. |
|--------|-------------------------------------------------------------------------------|

| · | a breach of his duty of care to us or to another person, |
|--------|----------------------------------------------------------|

| · | a breach of his duty of loyalty 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 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| · | a financial liability imposed on or incurred by an office holder 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. Such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that the undertaking is limited to types of events which our board of directors deems to be foreseeable in light of our actual operations at the time of the undertaking and limited to an amount or criterion determined by our board of directors to be reasonable under the circumstances, and further provided that such events and amounts or criterion are set forth in the undertaking to indemnify, and provided that the total amount of indemnification for all persons we have agreed to indemnify in such circumstances does not exceed, in the aggregate twenty-five percent (25%) of our shareholders’ equity at the time of the actual indemnification; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | reasonable litigation expenses, including attorney’s fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| · | any act or omission done with the intent to derive an illegal personal benefit; or |
|--------|------------------------------------------------------------------------------------|

| · | any fine levied against the office holder. |
|--------|--------------------------------------------|

----

----

----

----

----

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

|   | · | deductions over a three-year period of expenses involved with the issuance and listing of shares on a stock market; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

----

|   | · | the right to elect, under specified conditions, to file a consolidated tax return with other related Israeli Industrial Companies; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | accelerated depreciation rates on equipment and buildings. |
|--------|--------|------------------------------------------------------------|

----

----

----

|   | · | dealers or traders in securities, currencies or notional principal contracts; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | financial institutions; |
|--------|--------|-------------------------|

|   | · | insurance companies; |
|--------|--------|----------------------|

|   | · | real estate investment trusts; |
|--------|--------|--------------------------------|

|   | · | banks; |
|--------|--------|--------|

|   | · | investors subject to the alternative minimum tax; |
|--------|--------|---------------------------------------------------|

|   | · | tax-exempt organizations; |
|--------|--------|---------------------------|

|   | · | regulated investment companies; |
|--------|--------|---------------------------------|

|   | · | investors that actually or constructively own 10 percent or more of our voting shares; |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | investors that will hold the ADSs as part of a hedging or conversion transaction or as a position in a straddle or a part of a synthetic security or other integrated transaction for U.S. Federal income tax purposes; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | investors that are treated as partnerships or other pass through entities for U.S. Federal income tax purposes and persons who hold the ADSs through partnerships or other pass through entities; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | investors whose functional currency is not the U.S. dollar. |
|--------|--------|-------------------------------------------------------------|

|   | · | an individual who is a citizen or a resident of the United States; |
|--------|--------|--------------------------------------------------------------------|

----

|   | · | 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; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | 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. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

----

----

|   | · | a U.S. holder would be required to allocate income recognized upon receiving certain dividends or gain recognized upon the disposition of ADSs ratably over its holding period for such ADSs, |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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, |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the amount allocated to the year of the dividend payment or disposition would be taxable as ordinary income, and |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | a U.S. holder would be required to make an annual return on IRS Form 8621 regarding distributions received and gain realized with respect to ADSs. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | the gain is connected with a trade or business that you conduct in the United States through an office or other fixed place of business, or |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | you are an individual, you are present in the United States for at least 183 days during the year in which you dispose of the ADSs and have a “tax home” in the United States, and certain other conditions are satisfied. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Item 11. | Quantitative and Qualitative Disclosures About Market Risk. |
|----------|-------------------------------------------------------------|

| In U.S. dollars in millions:   |   |
|--------------------------------|--------|
|                           |   | U.S. Dollars |   |   | British Pound |   |   | Euro |   |   | New Israeli Shekel |   |   | Swiss Frank |   |   | Canadian Dollar |   |   | Hong Kong Dollar |   |   | Japanese Yen |   |   | Australian Dollar |   |   | Other currencies |   |   | Total |   |
|  Israel                   |   |   | - |   |   |   | 5.64 |   |   |   | 6.23 |   |   |   | (23.49 | ) |   |   | 0.11 |   |   |   | 0.13 |   |   |   | (0.70 | ) |   |   | (0.18 | ) |   |   | 0.45 |   |   |   | 0.89 |   |   |   | (10.92 | ) |
|  European Union           |   |   | 3.70 |   |   |   | (4.34 | ) |   |   | 10.08 |   |   |   | - |   |   |   | (0.04 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.02 |   |   |   | 9.42 |   |
|  Switzerland              |   |   | 0.51 |   |   |   | 0.54 |   |   |   | 0.35 |   |   |   | - |   |   |   | - |   |   |   | 0.02 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1.42 |   |
|  United States of America |   |   | - |   |   |   | - |   |   |   | 1.86 |   |   |   | - |   |   |   | - |   |   |   | 0.41 |   |   |   | - |   |   |   | 2.07 |   |   |   | 0.23 |   |   |   | - |   |   |   | 4.57 |   |
|  Canada                   |   |   | (0.50 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (0.50 | ) |
|  Hong Kong                |   |   | 0.01 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.08 |   |   |   | 0.09 |   |
|  Japan                    |   |   | - |   |   |   | (0.28 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (0.28 | ) |
|  Australia                |   |   | 0.31 |   |   |   | 0.01 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 0.05 |   |   |   | 0.37 |   |
|                           |   |   | 4.03 |   |   |   | 1.57 |   |   |   | 18.52 |   |   |   | (23.49 | ) |   |   | 0.07 |   |   |   | 0.56 |   |   |   | (0.70 | ) |   |   | 1.89 |   |   |   | 0.68 |   |   |   | 1.04 |   |   |   | 4.17 |   |

----

|               |   | NIS/USD  |   |   | GBP/ USD |   |   | EUR/ USD |   |   | CHF/ USD |   |   | CAD/USD  |   |   | HKD/USD  |   |   | JPY/USD       |   |   | AUD/USD |   |
|--------------------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|--------|---------------|--------|--------|---------|--------|
|  Net Exposure |   |     | (23.49 | )      |     |   | 5.02   |     |   |   | 7.20     |   |   |     | 0.62   |   |     |   | 0.04   |          |   |   | (0.69   | )      |   |   | 1.89 |   |   |   | 0.99 |   |
|               |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |     |   |   |          |   |   |    |   |   |   |   |   |   |   |   |   |
|               |   | GBP/ EUR |   |   | GBP/ CHF |   |   | GBP/ JPY |   |   | GBP/ AUD |   |   | EUR/ CHF |   |   | CAD/ CHF |   |   | Other / Other |   |   |    |   |   |
|  Net Exposure |   |     | 10.95  |   |     |   | 0.54   |     |   |   | (0.28    | )      |   |     | 0.01   |   |     |   | 0.31   |          |   |   | 0.02    |   |   |   | 12.58 |   |   |   |   |   |

|             |   | New Israel Shekel |   |   | Brazilian Real |   |   | Other currencies |   |   | Total |   |
|------------------|--------|-------------------|--------|--------|----------------|--------|--------|------------------|--------|--------|-------|--------|
| less than 1 year |   |              | 6.80   |   |           |   | 0.23   |             |   |   | 0.19  |   |   |   | 6.99 |   |
| 1-3 years        |   |              | 9.97   |   |           |   | 0.68   |             |   |   | 0.04  |   |   |   | 10.01 |   |
| 3-5 years        |   |              | -      |   |           |   | 0.19   |             |   |   | -     |   |   |   | 0.19 |   |
| Total            |   |              | 16.77  |   |           |   | 1.10   |             |   |   | 0.23  |   |   |   | 17.00 |   |

| In U.S. dollars in millions:                           |   |                |   |   |       |   |   |   |   |
|--------------------------------------------------------|--------|---------------------|--------|--------|------------|--------|--------|--------|--------|
|                                                   |   | Notional Amount     |   |   | Fair Value |   |
|                                                   |   | New Israeli Shekels |   |   | Euros      |   |   |   |   |
| Zero-cost collar contracts to hedge payroll expenses   |   |                | 28.20  |   |       |   | -      |   |   |   | 0.19 |   |
| Forward contracts to hedge payroll expenses            |   |                | 16.10  |   |       |   | -      |   |   |   | (0.08 | ) |
| Forward contracts to hedge construction-type contracts |   |                | -      |   |       |   | 11.67  |   |   |   | (0.18 | ) |
|                                                   |   |                | 44.30  |   |       |   | 11.67  |   |   |   | (0.07 | ) |

----

| In U.S. dollars in millions:      |   |           |   |   |                 |   |   |      |   |   |   |   |   |         |   |   |      |   |   |      |   |   |
|-----------------------------------|--------|----------------|--------|--------|----------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------------|--------|--------|-----------|--------|--------|-----------|--------|--------|
|                              |   | Amortized Cost |   |   | Estimated fair value |   |   |      |   |
|                              |   | Up to 1 year   |   |   | 1-3 years            |   |   | 4-5 years |   |   | Total  |   |   | Up to 1 year |   |   | 1-3 years |   |   | 4-5 years |   |   | Total |   |
| Corporate debentures              |   |           | 56.16  |   |                 |   | 146.14 |      |   |   | 3.00   |   |   |         | 205.30 |   |      |   | 57.04  |      |   |   | 148.48 |   |   |   | 3.05 |   |   |   | 208.57 |   |
| U.S. Government agency debentures |   |           | 1.51   |   |                 |   | 42.53  |      |   |   | -      |   |   |         | 44.04  |   |      |   | 1.54   |      |   |   | 42.38 |   |   |   | - |   |   |   | 43.92 |   |
| US treasuries                     |   |           | 10.01  |   |                 |   | -      |      |   |   | 30.11  |   |   |         | 40.12  |   |      |   | 10.04  |      |   |   | - |   |   |   | 30.92 |   |   |   | 40.96 |   |
|                              |   |           | 67.68  |   |                 |   | 188.67 |      |   |   | 33.11  |   |   |         | 289.46 |   |      |   | 68.62  |      |   |   | 190.86 |   |   |   | 33.96 |   |   |   | 293.45 |   |

| Item 12. | Description of Securities Other than Equity Securities. |
|----------|---------------------------------------------------------|

----

|   | (1) | any applicable taxes and other governmental charges, |
|--------|-----|------------------------------------------------------|

|   | (2) | any applicable transfer or registration fees, |
|--------|-----|-----------------------------------------------|

|   | (3) | certain cable, telex and facsimile transmission charges as provided in the Deposit Agreement, |
|--------|-----|-----------------------------------------------------------------------------------------------|

|   | (4) | any expenses incurred in the conversion of foreign currency, |
|--------|-----|--------------------------------------------------------------|

|   | (5) | a fee of $5.00 or less per 100 ADSs (or a portion thereof) for the execution and delivery of ADRs and the surrender of ADRs, and |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | a fee for the distribution of proceeds of rights that the Depositary sells pursuant to the Deposit Agreement. |
|--------|-----|---------------------------------------------------------------------------------------------------------------|

Defaults, Dividend Arrearages and Delinquencies

----

Controls and Procedures.

Audit Committee Financial Expert.

----

Code of Ethics.

| Services Rendered |   | 2008 Fees |      |   | 2009 Fees |   |
|-------------------|--------|-----------|-----------|--------|-----------|--------|
| Audit (1)         |   | $         | 799,000   |   |      |   | 850,000 |   |
| Audit-related (2) |   | $         | 78,000    |   |      |   | 139,000 |   |
| Tax (3)           |   | $         | 172,000   |   |      |   | 566,000 |   |
| Total             |   | $         | 1,049,000 |   |      |   | 1,555,000 |   |

----

| (1)  | Audit fees are for audit services for each of the years shown in this table, including fees associated with the annual audit for 2009 (including audit in accordance with section 404 of the Sarbanes-Oxley act) and certain procedures regarding our quarterly financial results submitted on Form 6-K, consultations on various accounting issues and performance of local statutory audits. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Audit-related fees relate to assurance and associated services that traditionally are performed by the independent auditor, including: accounting consultation and consultation concerning financial accounting, reporting standards and government approvals and due diligence investigations. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)    | Tax fees are for professional services rendered by our auditors for tax compliance, tax advice on actual or contemplated transactions, tax consulting associated with international transfer prices and employee benefits. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                       |

----

Exemptions from the Listing Standards for Audit Committees

  Change in Registrant’s Certifying Accountant

Financial Statements.

----

| Item 19. | Exhibits. |
|----------|-----------|

| Exhibit No. | Description                                                                                                                                                                                                                                                                                    |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1         | Amended and Restated Memorandum of Association, as approved on December 21, 2006 (English translation) (filed as Exhibit 1.1 to NICE-Systems Ltd.’s Annual Report on Form 20-F filed with the SEC on June 13, 2007, and incorporated herein by reference).                               |
| 1.2         | Amended and Restated Articles of Association, as approved on December 21, 2006 (filed as Exhibit 1.2 to NICE-Systems Ltd.’s Annual Report on Form 20-F filed with the SEC on June 13, 2007, and incorporated herein by reference).                                                       |
| 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 SEC 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. 333-157371) filed with the SEC on February 17, 2009, and incorporated herein by reference).                                  |
| 4.1         | Manufacturing Outsourcing Agreement dated January 21, 2002 by and among NICE-Systems Ltd. and Flextronics Israel Ltd. (filed as Exhibit 4.5 to NICE-Systems Ltd.’s Annual Report on Form 20-F filed with the SEC on June 26, 2003, and incorporated herein by reference).                |
| 4.2         | Share Purchase Agreement, dated as of November 17, 2005, between certain shareholders of FAST Video Security AG and NICE-Systems Ltd. (filed as Exhibit 4.9 to NICE-Systems Ltd.’s Annual Report on Form 20-F filed with the SEC on May 17, 2006, and incorporated herein by reference). |
| 4.3         | Agreement and Plan of Merger, dated as of July 2, 2007, among Actimize Ltd., Nemo Acquisitions Ltd. and NICE-Systems Ltd. (filed as Exhibit 99.2 to NICE-Systems Ltd.’s Report on Form 6-K filed with the SEC on August 30, 2007, and incorporated herein by reference).       |
| 4.4         | Share Purchase and Sale Agreement between NICE-Systems Ltd., certain subsidiaries of the NICE-Systems Ltd., and, Fortent, Inc. and certain subsidiaries of Fortent, Inc., dated as of August 31, 2009                                                                                          |
| 4.5         | Asset Purchase Agreement, dated as of November 22, 2009, among Orsus Solutions Limited and its wholly-owned subsidiaries and NICE-Systems Ltd. and certain of its wholly-owned subsidiaries.                                                                                                   |
| 4.6         | NICE Systems Ltd. 2003 Stock Option Plan, as amended (filed as Exhibit 4.4 to NICE-System Ltd.’s Annual Report on Form 20-F (File No. 000-27466) filed with the SEC on April 6, 2009, and incorporated herein by reference).                                                             |
| 4.7         | NICE Systems Ltd. Amended and Restated 1999 Employee Stock Purchase Plan (filed as Exhibit 4 to NICE-System Ltd.’s Registration Statement on Form S-8 (Registration No. 333-111113) filed with the SEC on May 22, 2006, and incorporated herein by reference).                           |
| 4.8         | Actimize Ltd. 2003 Omnibus Stock Option and Restricted Stock Incentive Plan (filed as Exhibit 4.4 to NICE-System Ltd.’s Registration Statement on Form S-8 (Registration No. 333-145981) filed with the SEC on September 11, 2007, and incorporated herein by reference).                |
| 4.9         | NICE Systems Ltd. 2008 Share Incentive Plan, as amended (filed as Exhibit 4.8 to NICE-System Ltd.’s Annual Report on Form 20-F (File No. 000-27466) filed with the SEC on April 6, 2009, and incorporated herein by reference).                                                          |
| 4.10        | Orsus Solutions Limited 2007 Incentive Option Plan, as amended.                                                                                                                                                                                                                                |
| 8.1         | List of significant subsidiaries.                                                                                                                                                                                                                                                              |
| 12.1        | Certification by the Chief Executive Officer of NICE-Systems Ltd., pursuant to Section 302 of the Sarbanes-Oxley Act 2002.                                                                                                                                                                     |
| 12.2        | Certification by the Chief Financial Officer of NICE-Systems Ltd., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                  |
| 13.1        | Certification by the Chief Executive Officer of NICE-Systems Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                   |
| 13.2        | Certification by the Chief Financial Officer of NICE-Systems Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                   |
| 15.1        | Consent of Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global.                                                                                                                                                                                                           |

----

INDEX

|                                                     | Page            |
|----------------------------------------------------------|-----------------|
|                                                     |            |
|                                                     |            |
| Reports of Independent Registered Public Accounting Firm | F-2 – F-3 |
|                                                     |            |
| Consolidated Balance Sheets                              | F-4 - F-5       |
|                                                     |            |
| Consolidated Statements of Income                        | F-6             |
|                                                     |            |
| Statements of Changes in Shareholders' Equity            | F-7 - F-8       |
|                                                     |            |
| Consolidated Statements of Cash Flows                    | F-9 - F-11      |
|                                                     |            |
| Notes to Consolidated Financial Statements               | F-12 - F-50     |

----

|   | Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 67067, IsraelTel:  972 (3)6232525Fax: 972 (3)5622555www.ey.com/il |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER     |
|------------------|--------------------------------------|
| March 31, 2010   | A Member of Ernst & Young Global |

----

| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER     |
|------------------|--------------------------------------|
| March 31, 2010   | A Member of Ernst & Young Global |

----

NICE SYSTEMS LTD. AND ITS SUBSIDIARIES

----

|                                                                                                                                    |   | December 31, |      |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|
|                                                                                                                                    |   | 2008         |      |   | 2009 |   |
| ASSETS                                                                                                                                  |   |         |      |   |   |   |
|                                                                                                                                    |   |         |      |   |   |   |
| CURRENT ASSETS:                                                                                                                         |   |         |      |   |   |   |
| Cash and cash equivalents                                                                                                               |   | $            | 144,376   |   |   | $ | 214,811 |   |
| Short-term bank deposits                                                                                                                |   |         | 65,003    |   |   |   | 40,227 |   |
| Marketable securities                                                                                                                   |   |         | 121,069   |   |   |   | 68,623 |   |
| Trade receivables (net of allowance for doubtful accounts of $ 6,308 and $ 6,039 at December 31, 2008 and 2009, respectively) |   |         | 104,115   |   |   |   | 102,147 |   |
| Other receivables and prepaid expenses                                                                                                  |   |         | 21,378    |   |   |   | 23,887 |   |
| Inventories                                                                                                                             |   |         | 13,235    |   |   |   | 14,445 |   |
| Deferred tax assets                                                                                                                     |   |         | 8,400     |   |   |   | 8,181 |   |
|                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total current assets                                                                                                                    |   |         | 477,576   |   |   |   | 472,321 |   |
|                                                                                                                                    |   |         |      |   |   |   |   |   |
| LONG-TERM ASSETS:                                                                                                                       |   |         |      |   |   |   |   |   |
| Marketable securities                                                                                                                   |   |         | 170,923   |   |   |   | 224,828 |   |
| Other long-term assets                                                                                                                  |   |         | 20,216    |   |   |   | 29,314 |   |
| Property and equipment, net                                                                                                             |   |         | 23,394    |   |   |   | 22,052 |   |
| Other intangible assets, net                                                                                                            |   |         | 145,402   |   |   |   | 156,664 |   |
| Goodwill                                                                                                                                |   |         | 445,504   |   |   |   | 494,498 |   |
|                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total long-term assets                                                                                                                  |   |         | 805,439   |   |   |   | 927,356 |   |
|                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total assets                                                                                                                            |   | $            | 1,283,015 |   |   | $ | 1,399,677 |   |

----

----

|                                                                                                                                                                    |   | December 31, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|
|                                                                                                                                                                    |   | 2008         |      |   | 2009 |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                    |   |         |      |   |   |   |
|                                                                                                                                                                    |   |         |      |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                    |   |         |      |   |   |   |
| Trade payables                                                                                                                                                          |   | $            | 23,060    |   |   | $ | 26,342 |   |
| Accrued expenses and other liabilities                                                                                                                                  |   |         | 237,005   |   |   |   | 261,519 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total current liabilities                                                                                                                                               |   |         | 260,065   |   |   |   | 287,861 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| LONG-TERM LIABILITIES:                                                                                                                                                  |   |         |      |   |   |   |   |   |
| Accrued severance pay                                                                                                                                                   |   |         | 19,928    |   |   |   | 22,979 |   |
| Deferred tax liabilities                                                                                                                                                |   |         | 31,954    |   |   |   | 25,899 |   |
| Other long-term liabilities                                                                                                                                             |   |         | 246       |   |   |   | 184 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total long-term liabilities                                                                                                                                             |   |         | 52,128    |   |   |   | 49,062 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| COMMITMENTS AND CONTINGENT LIABILITIES                                                                                                                                  |   |         |      |   |   |   |   |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| SHAREHOLDERS' EQUITY:                                                                                                                                                   |   |         |      |   |   |   |   |   |
| Share capital-                                                                                                                                                          |   |         |      |   |   |   |   |   |
| Ordinary shares of NIS 1 par value:                                                                                                                                     |   |         |      |   |   |   |   |   |
| Authorized: 125,000,000 shares at December 31, 2008 and 2009; Issued and outstanding: 60,667,712 and 61,958,508 shares at December 31, 2008 and 2009, respectively |   |         | 15,157    |   |   |   | 15,492 |   |
| Additional paid-in capital                                                                                                                                              |   |         | 853,226   |   |   |   | 892,139 |   |
| Accumulated other comprehensive income (loss)                                                                                                                           |   |         | (1,343    | ) |   |   | 8,585 |   |
| Retained earnings                                                                                                                                                       |   |         | 103,782   |   |   |   | 146,538 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total shareholders' equity                                                                                                                                              |   |         | 970,822   |   |   |   | 1,062,754 |   |
|                                                                                                                                                                    |   |         |      |   |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                              |   | $            | 1,283,015 |   |   | $ | 1,399,677 |   |

----

NICE SYSTEMS LTD. AND ITS SUBSIDIARIES

----

|                                                    |   | Year ended December 31, |    |
|---------------------------------------------------------|--------|-------------------------|---------|
|                                                    |   | 2007                    |    |   | 2008 |   |   | 2009 |   |
| Revenues:                                               |   |                    |    |   |   |   |   |   |   |
| Products                                                |   | $                       | 316,888 |   |   | $ | 351,680 |   |   | $ | 281,783 |   |
| Services                                                |   |                    | 200,486 |   |   |   | 272,482 |   |   |   | 301,332 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total revenues                                          |   |                    | 517,374 |   |   |   | 624,162 |   |   |   | 583,115 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cost of revenues:                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Products                                                |   |                    | 89,373  |   |   |   | 95,861 |   |   |   | 88,030 |   |
| Services                                                |   |                    | 116,969 |   |   |   | 142,885 |   |   |   | 149,175 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total cost of revenues                                  |   |                    | 206,342 |   |   |   | 238,746 |   |   |   | 237,205 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Gross profit                                            |   |                    | 311,032 |   |   |   | 385,416 |   |   |   | 345,910 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
| Research and development, net                           |   |                    | 59,632  |   |   |   | 78,445 |   |   |   | 77,382 |   |
| Selling and marketing                                   |   |                    | 120,592 |   |   |   | 147,879 |   |   |   | 141,526 |   |
| General and administrative                              |   |                    | 85,089  |   |   |   | 97,378 |   |   |   | 72,791 |   |
| Amortization of acquired intangibles                    |   |                    | 9,175   |   |   |   | 14,493 |   |   |   | 16,012 |   |
| In-process research and development write-off           |   |                    | 3,710   |   |   |   | - |   |   |   | - |   |
|     Settlement and related expenses |   |                    | -       |   |   |   | 9,870 |   |   |   | - |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                |   |                    | 278,198 |   |   |   | 348,065 |   |   |   | 307,711 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Operating income                                        |   |                    | 32,834  |   |   |   | 37,351 |   |   |   | 38,199 |   |
| Financial income and other, net                         |   |                    | 14,800  |   |   |   | 11,236 |   |   |   | 7,597 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Income before taxes on income                           |   |                    | 47,634  |   |   |   | 48,587 |   |   |   | 45,796 |   |
| Taxes on income                                         |   |                    | 10,254  |   |   |   | 9,480 |   |   |   | 3,040 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net income                                              |   | $                       | 37,380  |   |   | $ | 39,107 |   |   | $ | 42,756 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Net earnings per share:                                 |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Basic                                                   |   | $                       | 0.69    |   |   | $ | 0.65 |   |   | $ | 0.70 |   |
|                                                    |   |                    |    |   |   |   |   |   |   |   |   |   |
| Diluted                                                 |   | $                       | 0.67    |   |   | $ | 0.64 |   |   | $ | 0.68 |   |

----

NICE SYSTEMS LTD. AND ITS SUBSIDIARIES

----

|                                                           |   | Sharecapital |   |   | Additionalpaid-incapital |   |    | Accumulated other comprehensive income (loss) |   |   | Retained earnings |   |   | Total comprehensive income |    |   | Totalshareholders'equity |   |
|----------------------------------------------------------------|--------|--------------|--------|--------|--------------------------|--------|---------|-----------------------------------------------|--------|--------|-------------------|--------|--------|----------------------------|---------|--------|--------------------------|--------|
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |
| Balance as of January 1, 2007                                  |   | $            | 12,754 |   |                     | $      | 522,866 |                                          |   | $      | 7,483             |   |   | $                          | 26,471  |   |                     |   |   |   | $ | 569,574 |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |
| Issuance of shares upon public offering, net                   |   |         | 1,283  |   |                     |   | 179,546 |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 180,829 |   |
| Issuance of shares of ESPP                                     |   |         | 4      |   |                     |   | 495     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 499 |   |
| Exercise of share options                                      |   |         | 393    |   |                     |   | 19,406  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 19,799 |   |
| Stock-based compensation                                       |   |         | -      |   |                     |   | 23,666  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 23,666 |   |
| Tax benefit in respect of offering expenses                    |   |         | -      |   |                     |   | 10      |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 10 |   |
| Excess tax benefit from share-based payment arrangements       |   |         | -      |   |                     |   | 4,945   |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 4,945 |   |
| Issuance of shares and options for the acquisition of Actimize |   |         | 365    |   |                     |   | 60,272  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 60,637 |   |
| Restricted shares vesting in respect of Actimize acquisition   |   |         | 2      |   |                     |   | 44      |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 46 |   |
| Uncertain tax position opening balance adjustment              |   |         | -      |   |                     |   | -       |                                          |   |   | -                 |   |   |                       | 824     |   |                     |   |   |   |   | 824 |   |
| Comprehensive income:                                          |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |
| Foreign currency translation adjustments                       |   |         | -      |   |                     |   | -       |                                          |   |   | 5,175             |   |   |                       | -       |   |                     | $      | 5,175 |   |   |   | 5,175 |   |
| Unrealized gains on derivative instruments, net                |   |         | -      |   |                     |   | -       |                                          |   |   | 410               |   |   |                       | -       |   |                     |   | 410 |   |   |   | 410 |   |
| Net income                                                     |   |         | -      |   |                     |   | -       |                                          |   |   | -                 |   |   |                       | 37,380  |   |                     |   | 37,380 |   |   |   | 37,380 |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Total comprehensive income                                     |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     | $      | 42,965 |   |   |   |   |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Balance as of December 31, 2007                                |   |         | 14,801 |   |                     |   | 811,250 |                                          |   |   | 13,068            |   |   |                       | 64,675  |   |                     |   |   |   |   |   | 903,794 |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Issuance of shares of ESPP                                     |   |         | 5      |   |                     |   | 526     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 531 |   |
| Exercise of share options                                      |   |         | 290    |   |                     |   | 14,430  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 14,720 |   |
| Stock-based compensation                                       |   |         | -      |   |                     |   | 25,321  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 25,321 |   |
| Tax benefit in respect of offering expenses                    |   |         | -      |   |                     |   | 892     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 892 |   |
| Excess tax benefit from share-based payment arrangements       |   |         | -      |   |                     |   | 638     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 638 |   |
| Restricted shares vesting in respect of Actimize acquisition   |   |         | 61     |   |                     |   | 169     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   |   | 230 |   |
| Comprehensive income:                                          |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Foreign currency translation adjustments                       |   |         | -      |   |                     |   | -       |                                          |   |   | (14,405           | )      |   |                       | -       |   |                     | $      | (14,405 | ) |   |   | (14,405 | ) |
| Unrealized gains on marketable securities, net                 |   |         | -      |   |                     |   | -       |                                          |   |   | 1,432             |   |   |                       | -       |   |                     |   | 1,432 |   |   |   | 1,432 |   |
| Unrealized losses on derivative instruments, net               |   |         | -      |   |                     |   | -       |                                          |   |   | (1,438            | )      |   |                       | -       |   |                     |   | (1,438 | ) |   |   | (1,438 | ) |
| Net income                                                     |   |         | -      |   |                     |   | -       |                                          |   |   | -                 |   |   |                       | 39,107  |   |                     |   | 39,107 |   |   |   | 39,107 |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Total comprehensive income                                     |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     | $      | 24,696 |   |   |   |   |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Balance as of December 31, 2008                                |   |         | 15,157 |   |                     |   | 853,226 |                                          |   |   | (1,343            | )      |   |                       | 103,782 |   |                     |   |   |   |   |   | 970,822 |   |
|                                                           |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |

----

|                                                         |   | Sharecapital |   |   | Additionalpaid-incapital |   |    | Accumulated other comprehensive income (loss) |   |   | Retained earnings |   |   | Total comprehensive income |    |   | Totalshareholders'equity |   |
|--------------------------------------------------------------|--------|--------------|--------|--------|--------------------------|--------|---------|-----------------------------------------------|--------|--------|-------------------|--------|--------|----------------------------|---------|--------|--------------------------|--------|
|                                                         |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |
| Balance as of December 31, 2008                              |   |         | 15,157 |   |                     |   | 853,226 |                                          |   |   | (1,343            | )      |   |                       | 103,782 |   |                     |   |   |   |   | 970,822 |   |
|                                                         |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |
| Issuance of shares of ESPP                                   |   |         | 5      |   |                     |   | 370     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 375 |   |
| Exercise of share options                                    |   |         | 303    |   |                     |   | 19,267  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 19,570 |   |
| Stock-based compensation                                     |   |         | -      |   |                     |   | 18,237  |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 18,237 |   |
| Excess tax benefit from share-based payment arrangements     |   |         | -      |   |                     |   | 969     |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 969 |   |
| Restricted shares vesting in respect of Actimize acquisition |   |         | 27     |   |                     |   | 70      |                                          |   |   | -                 |   |   |                       | -       |   |                     |   |   |   |   | 97 |   |
| Comprehensive income:                                        |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |
| Foreign currency translation adjustments                     |   |         | -      |   |                     |   | -       |                                          |   |   | 7,415             |   |   |                       | -       |   |                     | $      | 7,415 |   |   |   | 7,415 |   |
| Unrealized gains on marketable securities, net               |   |         | -      |   |                     |   | -       |                                          |   |   | 2,206             |   |   |                       | -       |   |                     |   | 2,206 |   |   |   | 2,206 |   |
| Unrealized gains on derivative instruments, net              |   |         | -      |   |                     |   | -       |                                          |   |   | 307               |   |   |                       | -       |   |                     |   | 307 |   |   |   | 307 |   |
| Net income                                                   |   |         | -      |   |                     |   | -       |                                          |   |   | -                 |   |   |                       | 42,756  |   |                     |   | 42,756 |   |   |   | 42,756 |   |
|                                                         |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Total comprehensive income                                   |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     | $      | 52,684 |   |   |   |   |   |
|                                                         |   |         |   |   |                     |   |    |                                          |   |   |              |   |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Balance as of December 31, 2009                              |   | $            | 15,492 |   |                     | $      | 892,139 |                                          |   | $      | 8,585             |   |   | $                          | 146,538 |   |                     |   |   |   |   | $ | 1,062,754 |   |

----

NICE SYSTEMS LTD. AND ITS SUBSIDIARIES

----

|                                                                                          |   | Year ended December 31, |     |
|-----------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                          |   | 2007                    |     |   | 2008 |   |   | 2009 |   |
| Cash flows from operating activities:                                                         |   |                    |     |   |   |   |   |   |   |
|                                                                                          |   |                    |     |   |   |   |   |   |   |
| Net income                                                                                    |   | $                       | 37,380   |   |   | $ | 39,107 |   |   | $ | 42,756 |   |
| Adjustments required to reconcile net income to net cash provided by operating activities:    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                 |   |                    | 30,926   |   |   |   | 42,740 |   |   |   | 47,217 |   |
| Stock-based compensation                                                                      |   |                    | 23,666   |   |   |   | 25,321 |   |   |   | 18,237 |   |
| Excess tax benefit from share-based payment arrangements                                      |   |                    | (4,945   | ) |   |   | (638 | ) |   |   | (969 | ) |
| In-process research and development write-off                                                 |   |                    | 3,710    |   |   |   | - |   |   |   | - |   |
|     Accrued severance pay, net                                                 |   |                    | 632      |   |   |   | 1,506 |   |   |   | (1,534 | ) |
| Amortization of premium (accretion of discount) and accrued interest on marketable securities |   |                    | (252     | ) |   |   | 1,504 |   |   |   | 1,656 |   |
| Loss (gain) on marketable securities                                                          |   |                    | 257      |   |   |   | 4,924 |   |   |   | (823 | ) |
| Deferred taxes, net                                                                           |   |                    | (5,231   | ) |   |   | (5,554 | ) |   |   | (6,984 | ) |
| Decrease (increase) in trade receivables, net                                                 |   |                    | (15,224  | ) |   |   | (232 | ) |   |   | 8,898 |   |
| Decrease (increase) in other receivables and prepaid expenses                                 |   |                    | (9,623   | ) |   |   | 80 |   |   |   | (2,265 | ) |
| Decrease (increase) in inventories                                                            |   |                    | 7,579    |   |   |   | (935 | ) |   |   | (531 | ) |
| Increase (decrease) in trade payables                                                         |   |                    | (2,982   | ) |   |   | 189 |   |   |   | 1,536 |   |
| Increase in accrued expenses and other liabilities                                            |   |                    | 51,933   |   |   |   | 28,057 |   |   |   | 12,039 |   |
| Other                                                                                         |   |                    | 418      |   |   |   | (359 | ) |   |   | 453 |   |
|                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                                     |   |                    | 118,244  |   |   |   | 135,710 |   |   |   | 119,686 |   |
|                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                                         |   |                    |     |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
| Purchase of property and equipment                                                            |   |                    | (10,947  | ) |   |   | (15,454 | ) |   |   | (8,851 | ) |
| Proceeds from sale of property and equipment                                                  |   |                    | 58       |   |   |   | 20 |   |   |   | 70 |   |
| Investment in marketable securities                                                           |   |                    | (208,590 | ) |   |   | (231,057 | ) |   |   | (197,499 | ) |
| Proceeds from maturity of marketable securities                                               |   |                    | 170,945  |   |   |   | 64,725 |   |   |   | 140,396 |   |
| Proceeds from sale and call of marketable securities                                          |   |                    | 30,100   |   |   |   | 111,826 |   |   |   | 57,394 |   |
| Investment in short-term bank deposits                                                        |   |                    | (39,131  | ) |   |   | (64,448 | ) |   |   | (110,021 | ) |
| Proceeds from short-term bank deposits                                                        |   |                    | 139      |   |   |   | 39,095 |   |   |   | 134,473 |   |
| Payment for the acquisition of Actimize (a)                                                   |   |                    | (210,540 | ) |   |   | (1,633 | ) |   |   | - |   |
| Payment for the acquisition of Fortent (b)                                                    |   |                    | -        |   |   |   | - |   |   |   | (72,700 | ) |
| Payment for other acquisitions                                                                |   |                    | (7,058   | ) |   |   | (20,046 | ) |   |   | (12,226 | ) |
| Capitalization of software development costs                                                  |   |                    | (962     | ) |   |   | (1,278 | ) |   |   | (1,315 | ) |
| Purchase of intangible assets                                                                 |   |                    | -        |   |   |   | (3,533 | ) |   |   | (1,000 | ) |
| Receipt upon the realization of investment in an affiliate                                    |   |                    | -        |   |   |   | 964 |   |   |   | - |   |
|                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                                                         |   |                    | (275,986 | ) |   |   | (120,819 | ) |   |   | (71,279 | ) |

----

----

|                                                                    |   | Year ended December 31, |     |
|-------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                    |   | 2007                    |     |   | 2008 |   |   | 2009 |   |
| Cash flows from financing activities:                                   |   |                    |     |   |   |   |   |   |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |
| Proceeds from issuance of shares upon public offering, net              |   |                    | 180,934  |   |   |   | - |   |   |   | - |   |
| Proceeds from issuance of shares upon exercise of options and ESPP, net |   |                    | 20,273   |   |   |   | 15,282 |   |   |   | 19,948 |   |
| Receipt of short-term bank loan                                         |   |                    | 120,000  |   |   |   | - |   |   |   | - |   |
| Repayment of short-term bank loan                                       |   |                    | (120,000 | ) |   |   | - |   |   |   | - |   |
| Excess tax benefit from share-based payment arrangements                |   |                    | 4,945    |   |   |   | 638 |   |   |   | 969 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Net cash provided by financing activities                               |   |                    | 206,152  |   |   |   | 15,920 |   |   |   | 20,917 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Effect of exchange rate changes on cash                                 |   |                    | 844      |   |   |   | (3,054 | ) |   |   | 1,111 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Increase in cash and cash equivalents                                   |   |                    | 49,254   |   |   |   | 27,757 |   |   |   | 70,435 |   |
| Cash and cash equivalents at the beginning of the year                  |   |                    | 67,365   |   |   |   | 116,619 |   |   |   | 144,376 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at the end of the year                        |   | $                       | 116,619  |   |   | $ | 144,376 |   |   | $ | 214,811 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flows activities:                       |   |                    |     |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash paid during the year for:                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Income taxes                                                            |   | $                       | 2,199    |   |   | $ | 2,499 |   |   | $ | 4,021 |   |
|                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Interest                                                                |   | $                       | 668      |   |   | $ | 52 |   |   | $ | 58 |   |

----

----

|   |                                                                                     |   | Year ended December 31, |    |
|--------|------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|   |                                                                                     |   | 2007                    |    |   | 2008 |   |   | 2009 |   |
| (a)    | Payment for the acquisition of Actimize:                                                 |   |                    |    |   |   |   |   |   |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |
|   | Estimated fair value of assets acquired and liabilities assumed at the acquisition date: |   |                    |    |   |   |   |   |   |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |
|   | Working capital deficit (excluding cash and cash equivalents)                            |   | $                       | (8,919  | ) |   | $ | - |   |   | $ | - |   |
|   | Property and equipment                                                                   |   |                    | 622     |   |   |   | - |   |   |   | - |   |
|   | Severance pay fund                                                                       |   |                    | 324     |   |   |   | - |   |   |   | - |   |
|   | Long-term other receivables and prepaid expenses                                         |   |                    | 332     |   |   |   | - |   |   |   | - |   |
|   | In-process research and development                                                      |   |                    | 3,710   |   |   |   | - |   |   |   | - |   |
|   | Other intangible assets                                                                  |   |                    | 71,300  |   |   |   | - |   |   |   | - |   |
|   | Goodwill                                                                                 |   |                    | 219,543 |   |   |   | - |   |   |   | - |   |
|   | Long-term deferred tax liabilities                                                       |   |                    | (13,028 | ) |   |   | - |   |   |   | - |   |
|   | Other long-term liabilities                                                              |   |                    | (854)   |   |   |   | - |   |   |   | - |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   |                    | 273,030 |   |   |   | - |   |   |   | - |   |
|   | Add (less) - (accrued) acquisition costs                                                 |   |                    | (1,853  | ) |   |   | 1,633 |   |   |   | - |   |
|   | Less - amount acquired by issuance of shares and options, net of issuance expenses       |   |                    | (60,637 | ) |   |   | - |   |   |   | - |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   | $                       | 210,540 |   |   | $ | 1,633 |   |   | $ | - |   |
| (b)    | Payment for the acquisition of Fortent:                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   | Estimated fair value of assets acquired and liabilities assumed at the acquisition date: |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   | Working capital deficit (excluding cash and cash equivalents)                            |   | $                       | -       |   |   | $ | - |   |   | $ | (9,796 | ) |
|   | Property and equipment                                                                   |   |                    | -       |   |   |   | - |   |   |   | 1,302 |   |
|   | Long-term other receivables and prepaid expenses                                         |   |                    | -       |   |   |   | - |   |   |   | 536 |   |
|   | Long-term deferred tax assets                                                            |   |                    | -       |   |   |   | - |   |   |   | 5,746 |   |
|   | Other intangible assets                                                                  |   |                    | -       |   |   |   | - |   |   |   | 35,000 |   |
|   | Goodwill                                                                                 |   |                    | -       |   |   |   | - |   |   |   | 40,212 |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   |                    | -       |   |   |   | - |   |   |   | 73,000 |   |
|   | Less  - accrued payment                                                        |   |                    | -       |   |   |   | - |   |   |   | (300 | ) |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   |                                                                                     |   | $                       | -       |   |   | $ | - |   |   | $ | 72,700 |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   | Tax benefit on offering expenses                                                         |   | $                       | 10      |   |   | $ | 892 |   |   | $ | - |   |
|   |                                                                                     |   |                    |    |   |   |   |   |   |   |   |   |   |
|   | Accrued offering expenses                                                                |   | $                       | 105     |   |   | $ | - |   |   | $ | - |   |

----

NICE SYSTEMS LTD. AND ITS SUBSIDIARIES

----

| NOTE 1:- | GENERAL |
|----------|---------|

|   | a. | General: |
|--------|----|----------|

|   | NICE Systems Ltd. ("NICE" or "the Company") and subsidiaries (collectively - "the Group") is a leading global provider of advanced solutions that enable enterprises and security organizations to extract insight from interactions, transactions and surveillance to drive business performance and ensure safety and security. The Company's solutions enable companies and public organizations to capture, manage, analyze and impact unstructured interaction as well as transactional data, enabling such entities to comply with internal and governmental regulations, enhance business and operational performance and address security threats while increasing situational awareness. Unstructured content includes cross-channel analysis of phone calls, chat, instant messaging, and email interactions to contact centers, trading floors, branches, home agents and back offices, phone calls to emergency service providers and first responders, video captured by closed circuit cameras, radio communications between emergency services' and first responders' personnel, internet sessions, email and instant messaging and security management solutions for command and control centers. The Company's solutions include integrated, scalable, cross-channel recording platforms, cross-channel real-time analytics, software management applications. These solutions address critical business processes and risk management, compliance procedures and security needs of enterprises and security organizations. The Company's solutions facilitate faster decision-making and real-time analysis and actions, improving business and employee performance, reducing exposure to transactional risks related to financial crime (fraud detection and Anti Money Laundering or AML), operational risk and compliance activities, and enhancing security and public safety. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The enterprise customers span a variety of industries, such as financial services, telecommunications, healthcare, outsourcers, retail, media, travel, service providers, utilities and others. The Company's financial crime solutions primarily serve financial services organizations. The Company's security solutions are tailored to protect city centers transportation systems, critical infrastructure, enterprise campuses and more. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's markets are located primarily in North America, Europe, the Middle East and Africa ("EMEA") and Asia Pacific ("APAC"). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company depends on a 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 the Company's 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 these markets will be affected. In addition, a loss of a major distributor, or any event negatively affecting such distributor's 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 15c. |
|--------|-------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | b. | Acquisitions: |
|--------|----|---------------|

|   | 1. | Acquisition of Actimize Ltd.: |
|--------|----|-------------------------------|

|   | On August 30, 2007, the Company consummated an agreement to acquire all of the outstanding shares of Actimize Ltd. ("Actimize"), a leading provider of transactional risk management software for the financial services industry, for an aggregate consideration of $ 281,111. The total purchase price of Actimize was composed of the following: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Cash                                       |   | $      | 217,224 |   |
|--------------------------------------------|--------|--------|---------|--------|
| Shares *)                                  |   |   | 53,217  |   |
| Options and Restricted Share Awards **)    |   |   | 7,670   |   |
| Acquisition related transaction costs ***) |   |   | 3,000   |   |
|                                       |   |   |    |   |
| Total purchase price                       |   | $      | 281,111 |   |

|   | *) | Represents the fair value of 1,501,933 American Depositary Shares ("ADSs") of NICE issued to Actimize shareholders upon consummation of the acquisition, valued based on the market price of the securities a few days before and after the terms of the acquisition were agreed to and announced. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **) | Represents the fair value of the vested portion of 987,104 options and restricted shares of NICE granted upon consummation of the acquisition to the holders of partially vested options and restricted shares of Actimize originally granted under Actimize's 2003 Omnibus Stock Option and Restricted Stock Incentive Plan. The fair value of these options was determined using the Black-Scholes-Merton valuation model with the following assumptions: expected life of 0-4 years, risk-free interest rate of 4.85%-4.99%, expected volatility of 30.7%-35.8% and no dividend yield. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ***) | Acquisition related transaction costs include investment banking fees, legal and accounting fees and other external costs directly related to the acquisition. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 29, 2007, to finance a portion of the cash consideration for the Actimize acquisition, the Company entered into an unsecured loan agreement and a letter of undertaking with a bank, which provide for a term loan of $ 120,000, originally repayable in one installment on February 29, 2008. The loan bore interest payable monthly, at an annual rate of LIBOR plus a margin of 0.45%. On September 28, 2007, the Company repaid the loan. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The acquisition of Actimize allows NICE to offer its customers and partners a more extensive product portfolio in the industries in which NICE operates. Actimize is a leading provider of software solutions for anti-money laundering, brokerage compliance, customer due diligence and fraud prevention. Built on a patented, scalable and extensible analytics platform, Actimize solutions enable financial institutions to increase their insight into real-time customer behavior and improve risk and compliance performance. By purchasing Actimize, the Company strategically strengthened its position as an enterprise wide analytics powerhouse and expanded its solution offering. The factors that resulted in recognition of goodwill in connection with the acquisition included the leverage for vertical markets and time to market benefits. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | 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 Actimize. The results of the Actimize operations have been included in the consolidated financial statements since August 30, 2007. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table summarizes the estimated fair values of the assets acquired and liabilities assumed: |
|--------|----------------------------------------------------------------------------------------------------------|

| Cash                                              |   | $      | 8,081   |   |
|---------------------------------------------------|--------|--------|---------|--------|
| Marketable securities                             |   |   | 6,140   |   |
| Trade receivables                                 |   |   | 4,503   |   |
| Short-term other receivables and prepaid expenses |   |   | 1,648   |   |
| Short-term deferred tax assets                    |   |   | 925     |   |
| Property and equipment                            |   |   | 622     |   |
| Severance pay fund                                |   |   | 324     |   |
| Long-term other receivables and prepaid expenses  |   |   | 332     |   |
| Trade name                                        |   |   | 1,680   |   |
| Core technology                                   |   |   | 38,480  |   |
| In-process research and development               |   |   | 3,710   |   |
| Customer relationships                            |   |   | 31,140  |   |
| Goodwill                                          |   |   | 219,543 |   |
|                                              |   |   |    |   |
| Total assets acquired                             |   |   | 317,128 |   |
|                                              |   |   |    |   |
| Trade payables                                    |   |   | (1,729  | )      |
| Accrued expenses and other liabilities            |   |   | (18,403 | )      |
| Short-term deferred tax liabilities               |   |   | (2,003  | )      |
| Long-term deferred tax liabilities                |   |   | (13,028 | )      |
| Other long-term liabilities                       |   |   | (854    | )      |
|                                              |   |   |    |   |
| Total liabilities assumed                         |   |   | (36,017 | )      |
|                                              |   |   |    |   |
| Net assets acquired                               |   | $      | 281,111 |   |

|   | The $ 3,710 assigned to in-process research and development was written off at the acquisition. |
|--------|------------------------------------------------------------------------------------------------------|

|   | Trade name, core technology and customer relationships in the amount of $ 71,300 are amortized at an annual weighted average rate of 19%. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | 2. | Acquisition of Quality Plus Group Ltd.: |
|--------|----|-----------------------------------------|

|   | On April 8, 2008, the Company acquired certain assets, shares and business from Quality Plus Group Ltd., a UK-based value-added distributor of NICE's contact center solutions, and its affiliates ("QPC") for $ 12,587 in cash (including acquisition costs). The business acquired includes the sale, distribution, service, support, maintenance and development of workforce management solutions and associated services as conducted by QPC in the UK, Sweden and Australia. With the acquisition of QPC, the Company expanded its customer base and presence in the UK, Sweden and Australia and expanded and strengthened the Company's support organization in these regions. 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 QPC. The results of the QPC operations have been included in the consolidated financial statements since April 8, 2008. The Company recorded customer relationships and goodwill in the amounts of $ 12,000 and $ 5,524, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Acquisition of certain assets and liabilities of AVT Systems Limited: |
|--------|----|-----------------------------------------------------------------------|

|   | On April 28, 2008, the Company completed the acquisition of certain assets of AVT Systems Limited ("AVT"), for $ 6,186 in cash (including acquisition costs). The business acquired includes the sale, distribution, service, maintenance and support of NICE voice recording solutions (hardware and software and associated services) in the United Kingdom. With the acquisition of AVT, the Company expanded its customer base and presence in the UK financial sector and expanded and strengthened the Company's support organization in the UK. 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 AVT. The results of the AVT operations have been included in the consolidated financial statements since April 28, 2008. The Company recorded customer relationships and goodwill in the amounts of $ 3,838 and $ 3,478, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Acquisition of Syfact: |
|--------|----|------------------------|

|   | On June 17, 2009, the Company completed the acquisition of Syfact, for $ 4,425 in cash. The acquired business provides innovative investigative case management solutions, best practice and technologies that simplify and enrich the most complex fraud, money laundering, customer due diligence and corporate security investigations. 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 Syfact. The results of the Syfact operations have been included in the consolidated financial statements since June 15, 2009. The Company recorded customer relationships, technology and goodwill in the amounts of $ 2,361, $ 142 and $ 1,758, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | 5. | Acquisition of Fortent: |
|--------|----|-------------------------|

|   | On August 31, 2009, the Company completed the acquisition of all of the outstanding shares of certain subsidiaries of Fortent Inc. ("Fortent"), in consideration for $ 73,000 in cash. Fortent is a leading provider of analytics based Anti-Money Laundering and financial crime prevention software solutions for the financial services industry. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The acquisition of Fortent allows NICE to offer its customers and partners a more extensive product portfolio in the industries in which NICE operates. Fortent is a leading vendor known for its anti-money laundering deployments and expertise within the world's tier-one financial institutions and for its advanced statistical profiling analytics technology. The factors that resulted in recognition of goodwill in connection with the acquisition included the strength of the Company's position in the market and comprehensive integrated platform offering for risk and financial crime solution. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of Fortent. The results of the Fortent operations have been included in the consolidated financial statements since August 31, 2009. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues of Fortent for the period since the acquisition date through December 31, 2009, which are included in the consolidated financial statements amounted to $ 5,249. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table summarizes the estimated fair values of the assets acquired and liabilities assumed: |
|--------|----------------------------------------------------------------------------------------------------------|

| Cash                                              |   | $      | 144     |   |
|---------------------------------------------------|--------|--------|---------|--------|
| Trade receivables                                 |   |   | 2,253   |   |
| Other receivables and prepaid expenses            |   |   | 1,881   |   |
| Property and equipment                            |   |   | 1,302   |   |
| Long-term trade receivables                       |   |   | 536     |   |
| Long-term deferred tax assets, net                |   |   | 5,746   |   |
| Trade name                                        |   |   | 460     |   |
| Core technology                                   |   |   | 14,300  |   |
| In-process research and development ("IPR&D") |   |   | 1,440   |   |
| Customer relationships                            |   |   | 18,800  |   |
| Goodwill                                          |   |   | 40,212  |   |
|                                              |   |   |    |   |
| Total assets acquired                             |   |   | 87,074  |   |
|                                              |   |   |    |   |
| Trade payables                                    |   |   | (1,488  | )      |
| Accrued expenses and other liabilities            |   |   | (9,846  | )      |
|  Short-term deferred tax liabilities         |   |   | (2,596  | )      |
|                                              |   |   |    |   |
| Total liabilities assumed                         |   |   | (13,930 | )      |
|                                              |   |   |    |   |
| Net assets acquired                               |   | $      | 73,144  |   |

|   | In performing the purchase price allocation, management considered, among other factors, analyses of historical financial performance, highest and best use of the acquired assets and estimates of future performance of Fortent's products. The fair value of intangible assets was based on market participant approach using an income approach. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 1:- | GENERAL (Cont.) |
|----------|-----------------|

|   | Trade name, core technology and customer relationships in the amount of $ 33,560 are amortized at an annual weighted average rate of 19%. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | IPR&D in the amount of $ 1,440 represents incomplete research and development projects that had not reached technological feasibility and had no alternative future use as of the date of the acquisition.  Upon completion of development, the acquired IPR&D will be considered finite-lived asset and will be amortized accordingly. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | Acquisition of Hexagon: |
|--------|----|-------------------------|

|   | On August 31, 2009, the Company acquired all of the outstanding shares of Hexagon System Engineering Ltd. ("Hexagon"), for $ 7,767 in cash. The acquired business provides cellular location tracking technology which enables law enforcement, internal security and intelligence agencies to fight crime and terror more effectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The acquisition was accounted for by the acquisition method and accordingly, the purchase price has been allocated according to the estimated fair value of the assets acquired and liabilities assumed of Hexagon. The results of the Hexagon operations have been included in the consolidated financial statements since August 31, 2009. The Company recorded technology and goodwill in the amounts of $ 5,391 and $ 3,379, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the terms of the acquisition agreement, additional contingent consideration of up to $ 2,500 in cash will be paid to the selling shareholders of Hexagon based on services rendered to the Company by the selling shareholders over two years. In accordance with ASC 805, the contingent consideration was recorded as prepaid expenses to be recognized over the employment period rather than as part of the purchase price. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Unaudited pro forma condensed results of operations: |
|--------|----|------------------------------------------------------|

|   | The following represents the unaudited pro forma condensed results of operations for the years ended December 31, 2008 and 2009 assuming that the acquisitions of Fortent, Hexagon and Syfact occurred on January 1, 2008 and 2009. The pro forma information is not necessarily indicative of the results of operations, which actually would have occurred had the acquisitions been consummated on those dates, nor does it purport to represent the results of operations for future periods. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   | Year ended December 31, |    |   | Year ended December 31, |   |
|--------------------------------|--------|-------------------------|---------|--------|-------------------------|--------|
|                           |   | 2008                    |    |   | 2009                    |   |
|                           |   | Unaudited               |    |   | Unaudited               |   |
|                           |   |                    |    |   |                    |   |
| Revenues                       |   | $                       | 656,509 |   |                    | $      | 599,573 |   |
|                           |   |                    |    |   |                    |   |   |   |
| Net income                     |   | $                       | 10,057  |   |                    | $      | 23,088 |   |
|                           |   |                    |    |   |                    |   |   |   |
| Basic net earnings per share   |   | $                       | 0.17    |   |                    | $      | 0.38 |   |
|                           |   |                    |    |   |                    |   |   |   |
| Diluted net earnings per share |   | $                       | 0.16    |   |                    | $      | 0.37 |   |

|   | 8. | Acquisition costs related to all of the 2009 acquisitions for the year ended December 31, 2009 in the amount of $ 4,069 were included in general and administrative expenses. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 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 the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. 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 certain subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of NICE and certain subsidiaries. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | NICE and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with ASC 830, "Foreign Currency Matters" (formerly SFAS No. 52). All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of income 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 income 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: |
|--------|----|-------------------|

|   | Cash equivalents are short-term unrestricted highly liquid investments that are readily convertible into cash, with original maturities of three months or less at acquisition. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | f. | Marketable securities: |
|--------|----|------------------------|

|   | The Company accounts for investments in debt securities in accordance with ASC 320, "Investments - Debt and Equity Securities" (formerly SFAS No. 115). 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In the third quarter of 2008, the Company reclassified its investments in marketable securities from the held to maturity category into the available-for-sale category. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of shareholders' equity in accumulated other comprehensive income (loss). Gains and losses are recognized when realized, on a specific identification basis, in the Company's consolidated statements of income. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Interest income resulting from investments in structured notes is accounted for under the provisions of ASC 320-10-35 (formerly EITF No. 96-12). Under ASC 320-10-35, the retrospective interest method is used for recognizing interest income. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On April 1, 2009, the Company adopted the updated guidance as codified in ASC 320-10-65 that changed the impairment and presentation model for its available for sale debt securities. Under the updated impairment model, an other-than-temporary impairment loss is recognized in earnings if the entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still needs to evaluate expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income (loss), net of taxes. The adoption of the updated guidance had no impact on the Company's consolidated financial position, results of operations or cash flows. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g. | Inventories: |
|--------|----|--------------|

|   | Inventories are stated at the lower of cost or market value. The cost of raw materials is determined by the "average cost" method, and the cost of finished goods on the basis of costs charged by third party manufacturer. The cost of work-in-progress related to long-term contracts includes materials, subcontractors and other direct costs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Inventory write-downs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, and discontinued products and for market prices lower than cost, if any. At the point of the loss recognition, a new lower cost basis for that inventory is established. In addition, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company's future demands forecast consistent with its valuation of excess and obsolete inventory. Inventory write-downs for 2007, 2008 and 2009 were $ 2,716, $ 130 and $ 1,586, respectively, and have been included in cost of revenues. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | h. | 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 |   |

|   | Leasehold improvements are amortized by the straight-line method over the term of the lease (including option terms) or the estimated useful life of the improvements, whichever is shorter. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i. | Other intangible assets, net: |
|--------|----|-------------------------------|

|   | Intangible assets are amortized over their estimated useful lives using the straight-line method, at the following weighted average annual rates: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | %      |   |
|------------------------------------------------------|--------|--------|--------|
|                                                 |   |   |   |
| Capitalized software development costs (see m below) |   |   | 33     |   |
| Core technology                                      |   |   | 18     |   |
| Trademarks                                           |   |   | 22     |   |
| Customer relationships and distribution network      |   |   | 14     |   |

|   | In connection with business combinations consummated through December 31, 2008, amounts assigned to intangible assets to be used in a particular research and development project that have not reached technological feasibility and have no alternative future use were charged to in process research and development write off at the acquisition date. Commencing January 1, 2009, acquired IPR&D is no longer being expensed on acquisition, but capitalized and assessed for impairment at least annually until the completion of development and afterward will be amortize over its useful life. No impairment loss was identified in 2009. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | j. | Impairment of long-lived assets: |
|--------|----|----------------------------------|

|   | The Company's long-lived assets and identifiable intangibles that are subject to amortization are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment"  (formerly SFAS No. 144), 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 the assets 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 2007, 2008 and 2009, no impairment indicators have been identified. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | k. | Goodwill: |
|--------|----|-----------|

|   | Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350 (formerly SFAS No. 142), goodwill is not amortized, but rather is subject to an annual impairment test. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ASC 350 requires goodwill to be tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for impairment by comparing the fair value of the reporting unit with its carrying value. The Company operates in four operating segments, and these segments comprise its reporting units. Fair value is determined using discounted cash flows. Significant estimates used in the fair value methodologies include estimates of future cash flows, future growth rates and the weighted average cost of capital of the reporting units. The Company performed annual impairment tests during the fourth quarter of 2007, 2008 and 2009 and did not identify any impairment losses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | l. | Revenue recognition: |
|--------|----|----------------------|

|   | The Company generates revenues from sales of products, which include hardware and software, software licensing, professional services and maintenance. Professional services include mainly installation, project management and training. The Company sells its products indirectly through a global network of distributors, system integrators and strategic partners, all of whom are considered end-users, and through its direct sales force. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from sales of product and software licensing are recognized when all criteria outlined in ASC 985-605, "Revenue Recognition" (formerly SOP No. 97-2 (as amended by SOP No. 98-9)), are met. Revenue from products and software licensing is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collectability is probable. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | In transactions where a customer's contractual terms include a provision for customer acceptance, revenues are recognized either when such acceptance has been obtained or as the acceptance provision has lapsed. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from multiple element arrangements are allocated to the different elements in the arrangement under the "residual method" when Vendor Specific Objective Evidence ("VSOE") of fair value exists for all undelivered elements and no VSOE exists for the delivered elements. Under the residual method, at the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (maintenance and professional services) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (products and software licenses) when the basic criteria in ASC 985-605 have been met. Any discount in the arrangement is allocated to the delivered element. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | The Company's policy for establishing VSOE of fair value of maintenance services is based on the price charged when the maintenance is renewed separately. Establishment of VSOE of fair value of installation and training services is based on the price charged when these elements are sold separately. VSOE of fair value of project management services is established based on a price per day which is similar to price per day charged for installation services. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenues from fixed price contracts that require significant customization, integration and installation are recognized based on ASC 605-35, "Construction-Type and Production-Type Contracts" (formerly SOP No. 81-1), using the percentage-of-completion method of accounting based on the ratio of costs related to contract performance incurred to date to the total estimated amount of such costs. The amount of revenue recognized is based on the total fees under the license agreement and the percentage of completion achieved. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact. The revenues from such arrangements are allocated between license revenues and professional services revenues to reflect the portion of each revenue source separately. Revenues allocated to services are based on the VSOE of fair value of the services in the arrangement and revenues allocated to product are the residual amount. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company maintains a provision for product returns in accordance with ASC 605, "Revenue Recognition" (formerly SFAS No. 48). The provision is estimated based on the Company's past experience and is deducted from revenues. As of December 31, 2008 and 2009, the provision for product returns amounted to $ 2,833 and $ 2,610, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred revenues include advances and payments received from customers, for which revenue has not yet been recognized. |
|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | m. | Research and development costs: |
|--------|----|---------------------------------|

|   | Research and development costs (net of grants) 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 ASC 985-20, "Software - Costs of Software to be Sold, Leased, or Marketed" (formerly SFAS No. 86). Based on the Company's product development process, technological feasibility is established upon completion of a detailed program design. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | n. | Income taxes: |
|--------|----|---------------|

|   | The Company accounts for income taxes in accordance with ASC 740, "Income Taxes" (formerly SFAS No. 109). This topic 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 the amount that is more likely than not to be realized. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company classifies interest as financial expenses and penalties as general and administrative expenses. |
|--------|-------------------------------------------------------------------------------------------------------------|

|   | o. | 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 deduction from research and development costs. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | p. | 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 receivables, marketable securities and foreign currency derivative contracts. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's cash and cash equivalents and short-term bank deposits are invested in deposits mainly in dollars with major international banks. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's trade receivables are derived from sales to customers located primarily in North America, EMEA and APAC. 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. A general allowance for doubtful accounts is provided, based on the length of time the receivables are past due. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's marketable securities include investment in corporate debentures and U.S. government debentures. The Company's investment policy limits the amount that the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations. As a result of the last turmoil in capital markets, the Company has tightened its control and monitoring over its marketable securities portfolio in order to minimize potential risks stemming from current capital markets environment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 hedge a portion of the Company's non-dollar currency exposure (see w below and Note 11 below). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | q. | Severance pay: |
|--------|----|----------------|

|   | The Company's liability for severance pay for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent monthly 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 and severance pay funds and by an accrual. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's agreements with employees in Israel, joining the Company since May 1, 2009, are in accordance with section 14 of the Severance Pay Law, 1963, whereas, the Company's contributions for severance pay shall be instead of its severance liability. Upon contribution of the full amount of the employee's monthly salary, and release of the policy to the employee, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposits on behalf of such obligation are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts have been paid. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Severance pay expense for 2007, 2008 and 2009 amounted to $ 5,680, $ 7,822 and $ 7,709, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------|

|   | The Company has a 401(K) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to contribute up to 6% of their eligible compensation, but generally not greater than $ 16.5 per year, (for certain employees over 50 years of age the maximum contribution is $ 22 per year) of their annual compensation to the plan through salary deferrals, subject to IRS limits. The Company matches 50% of employee contributions to the plan up to a limit of 6% of their eligible compensation. In the years 2007, 2008, and 2009, the Company recorded an expense for matching contributions in the amount of $ 1,769, $ 2,154 and $ 2,330, respectively. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | r. | Basic and diluted net earnings per share: |
|--------|----|-------------------------------------------|

|   | Basic net earnings per share are computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings per share are 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 ASC 260, "Earnings Per Share" (formerly SFAS No. 128). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The weighted average number of shares related to outstanding anti-dilutive options and restricted shares excluded from the calculations of diluted net earnings per share was 1,817,895, 3,133,816 and 3,867,517 for the years 2007, 2008 and 2009, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | s. | Accounting for stock-based compensation: |
|--------|----|------------------------------------------|

|   | The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation" (formerly SFAS No. 123 (R)), which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company recognizes compensation expenses for the value of its awards, which have graded vesting, based on the accelerated attribution method over the requisite service period of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model and values restricted stock based on the market value of the underlying shares at the date of grant. This option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. Federal Reserve zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | t. | Fair value of financial instruments: |
|--------|----|--------------------------------------|

|   | The Company adopted the provisions of ASC 820, "Fair Value Measurements and Disclosures" (formerly SFAS No. 157), effective January 1, 2008. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The hierarchy is broken down into three levels based on the inputs as follows: |
|--------|--------------------------------------------------------------------------------|

|   | ● | Level 1 - | Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.  |
|--------|---------|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 2 - | Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
|--------|---------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | ● | Level 3 - | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
|--------|---------|-----------|---------------------------------------------------------------------------------------------------------|

|   | The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's marketable securities trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency and accordingly are categorized as Level 2. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table presents assets and liabilities measured at fair value on a recurring basis at December 31, 2008 and 2009: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|                              |   | 2008                                     |   |
|-----------------------------------|--------|------------------------------------------|--------|
|                              |   | Fair value measurements using input type |   |
|                              |   | Level 1                                  |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Marketable securities:            |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Corporate debentures              |   | $                                        | -      |   |   | $ | 180,774 |   |   | $ | - |   |   | $ | 180,774 |   |
| U.S. Treasuries                   |   |                                     | -      |   |   |   | 88,530 |   |   |   | - |   |   |   | 88,530 |   |
| U.S. Government agency debentures |   |                                     | -      |   |   |   | 18,688 |   |   |   | - |   |   |   | 18,688 |   |
| Structured notes                  |   |                                     | -      |   |   |   | 4,000 |   |   |   | - |   |   |   | 4,000 |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total marketable securities       |   | $                                        | -      |   |   | $ | 291,992 |   |   | $ | - |   |   | $ | 291,992 |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative liabilities            |   | $                                        | -      |   |   | $ | (1,357 | ) |   | $ | - |   |   | $ | (1,357 | ) |

|                              |   | 2009                                     |   |
|-----------------------------------|--------|------------------------------------------|--------|
|                              |   | Fair value measurements using input type |   |
|                              |   | Level 1                                  |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Marketable securities:            |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Corporate debentures              |   | $                                        | -      |   |   | $ | 208,569 |   |   | $ | - |   |   | $ | 208,569 |   |
| U.S. Treasuries                   |   |                                     | -      |   |   |   | 40,959 |   |   |   | - |   |   |   | 40,959 |   |
| U.S. Government agency debentures |   |                                     | -      |   |   |   | 43,923 |   |   |   | - |   |   |   | 43,923 |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total marketable securities       |   | $                                        | -      |   |   | $ | 293,451 |   |   | $ | - |   |   | $ | 293,451 |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative assets                 |   | $                                        | -      |   |   | $ | 187 |   |   | $ | - |   |   | $ | 187 |   |
|                              |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative liabilities            |   | $                                        | -      |   |   | $ | (255 | ) |   | $ | - |   |   | $ | (255 | ) |

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, short-term bank deposits, trade receivables and trade payables approximate their fair value due to the short-term maturities of such instruments. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | u. | Legal contingencies: |
|--------|----|----------------------|

|   | The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | v. | Advertising expenses: |
|--------|----|-----------------------|

|   | Advertising expenses are charged to expense as incurred. Advertising expenses for the years 2007, 2008 and 2009 were $ 6,479, $ 8,047 and $ 5,883, respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | w. | Derivatives and hedging activities: |
|--------|----|-------------------------------------|

|   | The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company's exposure in currencies other than the dollar. The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value. If a derivative meets the definition of a hedge and is so designated, changes in the fair value of the derivative are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative qualified and designated as a hedge is recognized in earnings. If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | x. | 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 income, shareholders' equity or cash flows. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | y. | Adoption of New Accounting Standards: |
|--------|----|---------------------------------------|

|   | In December 2007, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on business combinations. The guidance significantly changes the accounting for business combinations, establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquire. The guidance also sets out requirements for recognition and measurement of the goodwill acquired in the business combination or a gain from a bargain purchase. Among the more significant changes, acquired in-process research and development will be capitalized and upon completion amortized over its useful life; acquisition costs will be expensed as incurred; restructuring costs will generally be expensed in periods after the acquisition date; contingent consideration will be recognized at fair value at the acquisition date with subsequent changes recognized in earnings, and reductions in deferred tax valuation allowance relating to a business acquisition will be recognized in earnings. In April 2009, the FASB issued an amendment to the revised business combination guidance regarding the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This authoritative guidance on business combinations was adopted by the Company for business combinations for which the acquisition date is on or after January 1, 2009. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | See f above for the adoption of the updated guidance regarding recognition and presentation of other-than-temporary impairment on marketable securities. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | See Note 11 for the adoption of the updated guidance of ASC 815 with respect to disclosure requirements regarding derivative instruments and hedging activities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | z. | Recently issued accounting pronouncements: |
|--------|----|--------------------------------------------|

|   | On July 1, 2009, the FASB issued the FASB Accounting Standards Codification ("the ASC"). The ASC became the single source of authoritative nongovernmental U.S. GAAP, superseding existing pronouncements issued by the FASB, the American Institute of Certified Public Accountants, the Emerging Issues Task Force and related literature. The ASC eliminates the previous U.S. GAAP hierarchy and establishes one level of authoritative U.S. GAAP. Rules and interpretive releases issued by the U.S. Securities and Exchange Commission ("SEC") under authority of federal securities law are also sources of the authoritative U.S. GAAP for SEC registrants. All other literature is considered non-authoritative. The codification is effective for interim and annual periods ending after September 15, 2009. Throughout the notes to the consolidated financial statements references that were previously made to former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate ASC reference. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In May 2009, FASB issued ASC Topic No. 855, "Subsequent Events" ("FASB ASC No. 855").  FASB ASC No. 855 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Specifically, FASB ASC No. 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  FASB ASC No. 855 was effective for fiscal years and interim periods ended after June 15, 2009.  The adoption did not have a material effect on the Company's consolidated financial statements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In October 2009, the FASB issued an update to ASC 985-605, "Software-Revenue Recognition" (originally issued as EITF 09-3). In accordance with the update to the ASC, tangible products containing software components and non-software components that function together to deliver the tangible product's essential functionality are excluded from the scope of the software revenue recognition guidance. In addition, hardware components of a tangible product containing software component are always excluded from the software revenue guidance. The update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, or retrospectively, for all periods presented.  The Company is currently evaluating the impact on its consolidated results of operations and financial condition. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|----------|-----------------------------------------|

|   | In October 2009, the FASB issued an update to ASC 605-25, "Revenue Recognition - Multiple-Element Arrangements", that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements to: (i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;  (ii) require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have VSOE of selling price  or third-party evidence of selling price; (iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method and (iv) require expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance. The update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, or retrospectively, for all periods presented. The Company is currently evaluating the impact on its consolidated results of operations and financial condition. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 3:- | MARKETABLE SECURITIES |
|----------|-----------------------|

|   | a. | Available-for-sale marketable securities: |
|--------|----|-------------------------------------------|

|   | The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2008 and 2009: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                              |   | Amortized cost |    |   | Gross unrealized gains |   |    | Gross unrealized losses |   |   | Estimated fair value |   |
|-----------------------------------|--------|----------------|---------|--------|------------------------|--------|---------|-------------------------|--------|--------|----------------------|--------|
|                              |   | December 31,   |    |   | December 31,           |   |    | December 31,            |   |   | December 31,         |   |
|                              |   | 2008           |    |   | 2009                   |   |    | 2008                    |   |   | 2009                 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |   | 2009 |   |
|                              |   |           |    |   |                   |   |    |                    |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate debentures              |   | $              | 180,705 |   |                   | $      | 205,297 |                    |   | $      | 1,691                |   |   | $ | 3,382 |   |   | $ | 1,622 |   |   | $ | 110 |   |   | $ | 180,774 |   |   | $ | 208,569 |   |
| U.S. Government agency debentures |   |           | 18,553  |   |                   |   | 44,042  |                    |   |   | 137                  |   |   |   | 39 |   |   |   | 2 |   |   |   | 158 |   |   |   | 18,688 |   |   |   | 43,923 |   |
| U.S. Treasuries                   |   |           | 87,168  |   |                   |   | 40,118  |                    |   |   | 1,363                |   |   |   | 901 |   |   |   | 1 |   |   |   | 60 |   |   |   | 88,530 |   |   |   | 40,959 |   |
| Structured notes                  |   |           | 4,000   |   |                   |   | -       |                    |   |   | -                    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,000 |   |   |   | - |   |
|                              |   |           |    |   |                   |   |    |                    |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   | $              | 290,426 |   |                   | $      | 289,457 |                    |   | $      | 3,191                |   |   | $ | 4,322 |   |   | $ | 1,625 |   |   | $ | 328 |   |   | $ | 291,992 |   |   | $ | 293,451 |   |

|                                  |   | Amortized |    |   | Estimated  |   |
|---------------------------------------|--------|-----------|---------|--------|------------|--------|
|                                  |   | cost      |    |   | fair value |   |
|                                  |   |      |    |   |       |   |
| Due within one year                   |   | $         | 67,678  |   |       | $      | 68,623 |   |
| Due after one year through five years |   |      | 221,779 |   |       |   | 224,828 |   |
|                                  |   |      |    |   |       |   |   |   |
|                                  |   | $         | 289,457 |   |       | $      | 293,451 |   |

|   | b. | Held-to-maturity marketable securities: |
|--------|----|-----------------------------------------|

|   | In the third quarter of 2008, due to market conditions and deterioration in the credit worthiness of issuers, the Company reclassified its investments in marketable securities from the held-to-maturity category into the available-for-sale category. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 4:- | OTHER RECEIVABLES AND PREPAID EXPENSES |
|----------|----------------------------------------|

|                   |   | December 31, |   |
|------------------------|--------|--------------|--------|
|                   |   | 2008         |   |   | 2009 |   |
|                   |   |         |   |   |   |   |
| Government authorities |   | $            | 5,055  |   |   | $ | 6,340 |   |
| Interest receivable    |   |         | 2,290  |   |   |   | 2,185 |   |
| Prepaid expenses       |   |         | 9,465  |   |   |   | 11,813 |   |
| Other                  |   |         | 4,568  |   |   |   | 3,549 |   |
|                   |   |         |   |   |   |   |   |   |
|                   |   | $            | 21,378 |   |   | $ | 23,887 |   |

| NOTE 5:- | INVENTORIES |
|----------|-------------|

|             |   | December 31, |   |
|------------------|--------|--------------|--------|
|             |   | 2008         |   |   | 2009 |   |
|             |   |         |   |   |   |
| Raw materials    |   | $            | 1,720  |   |   | $ | 2,354 |   |
| Work-in-progress |   |         | 1,843  |   |   |   | 2,244 |   |
| Finished goods   |   |         | 9,672  |   |   |   | 9,847 |   |
|             |   |         |   |   |   |   |   |   |
|             |   | $            | 13,235 |   |   | $ | 14,445 |   |

| NOTE 6:- | OTHER LONG-TERM ASSETS |
|----------|------------------------|

|                                   |   | December 31, |   |
|----------------------------------------|--------|--------------|--------|
|                                   |   | 2008         |   |   | 2009 |   |
|                                   |   |         |   |   |   |   |
| Investment in affiliates               |   | $            | 236    |   |   | $ | 236 |   |
| Severance pay fund                     |   |         | 15,957 |   |   |   | 20,398 |   |
| Other receivables and prepaid expenses |   |         | 1,756  |   |   |   | 3,092 |   |
| Deferred tax assets                    |   |         | 2,267  |   |   |   | 5,588 |   |
|                                   |   |         |   |   |   |   |   |   |
|                                   |   | $            | 20,216 |   |   | $ | 29,314 |   |

| NOTE 7:- | PROPERTY AND EQUIPMENT, NET |
|----------|-----------------------------|

|                               |   | December 31, |   |
|------------------------------------|--------|--------------|--------|
|                               |   | 2008         |   |   | 2009 |   |
|                               |   |         |   |   |   |   |
| Cost:                              |   |         |   |   |   |   |
| Computers and peripheral equipment |   | $            | 68,630 |   |   | $ | 65,550 |   |
| Office furniture and equipment     |   |         | 15,593 |   |   |   | 14,422 |   |
| Leasehold improvements             |   |         | 9,014  |   |   |   | 10,984 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 93,237 |   |   |   | 90,956 |   |
| Accumulated depreciation:          |   |         |   |   |   |   |   |   |
| Computers and peripheral equipment |   |         | 53,884 |   |   |   | 52,291 |   |
| Office furniture and equipment     |   |         | 11,243 |   |   |   | 10,806 |   |
| Leasehold improvements             |   |         | 4,716  |   |   |   | 5,807 |   |
|                               |   |         |   |   |   |   |   |   |
|                               |   |         | 69,843 |   |   |   | 68,904 |   |
|                               |   |         |   |   |   |   |   |   |
| Depreciated cost                   |   | $            | 23,394 |   |   | $ | 22,052 |   |

----

----

| NOTE 7:- | PROPERTY AND EQUIPMENT, NET (Cont.) |
|----------|-------------------------------------|

|   | Depreciation expense totaled $ 8,740, $ 10,260 and $ 11,570 for the years 2007, 2008 and 2009, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------|

| NOTE 8:- | OTHER INTANGIBLE ASSETS, NET |
|----------|------------------------------|

|                                            |   | December 31, |    |
|-------------------------------------------------|--------|--------------|---------|
|                                            |   | 2008         |    |   | 2009 |   |
| Original amounts:                               |   |         |    |   |   |   |
| Capitalized software development costs          |   | $            | 8,927   |   |   | $ | 10,242 |   |
| Core technology                                 |   |         | 103,487 |   |   |   | 124,748 |   |
| Trademarks                                      |   |         | 8,397   |   |   |   | 8,876 |   |
| Customer relationships and distribution network |   |         | 101,836 |   |   |   | 125,320 |   |
|                                            |   |         |    |   |   |   |   |   |
|                                            |   |         | 222,647 |   |   |   | 269,186 |   |
| Accumulated amortization:                       |   |         |    |   |   |   |   |   |
| Capitalized software development costs          |   |         | 6,475   |   |   |   | 7,525 |   |
| Core technology                                 |   |         | 40,234  |   |   |   | 59,131 |   |
| Trademarks                                      |   |         | 4,688   |   |   |   | 6,207 |   |
| Customer relationships and distribution network |   |         | 25,848  |   |   |   | 41,092 |   |
|                                            |   |         |    |   |   |   |   |   |
|                                            |   |         | 77,245  |   |   |   | 113,955 |   |
|                                            |   |         |    |   |   |   |   |   |
| Other intangible assets, net                    |   | $            | 145,402 |   |   | $ | 155,231 |   |

|   | b. | Amortization expense amounted to $ 22,186, $ 32,480 and $ 35,647 for the years 2007, 2008 and 2009, respectively. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Estimated amortization expense for the years ended (excluding amortization of capitalized software development costs): |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

| December 31,        |   |   |    |
|---------------------|--------|--------|---------|
|                |   |   |    |
| 2010                |   | $      | 39,943  |   |
| 2011                |   |   | 36,155  |   |
| 2012                |   |   | 32,069  |   |
| 2013                |   |   | 23,834  |   |
| 2014                |   |   | 12,020  |   |
| 2015 and thereafter |   |   | 8,493   |   |
|                |   |   |    |   |
|                |   | $      | 152,514 |   |

|   | d. | Indefinite-lived intangible assets composed of IPR&D in the amounts of $ 0 and $ 1,433 as of December 31, 2008 and 2009, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 9:- | GOODWILL |
|----------|----------|

|   | The changes in the carrying amount of goodwill allocated to reportable segments as of December 31, 2008 and 2009 are as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | December 31, 2008 |    |
|---------------------------------------------|--------|-------------------|---------|
|                                        |   | Americas          |    |   | EMEA |   |   | APAC |   |   | Actimize |   |   | Total |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2007                     |   | $                 | 173,765 |   |   | $ | 47,469 |   |   | $ | 2,479 |   |   | $ | 219,543 |   |   | $ | 443,256 |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                |   |              | -       |   |   |   | 8,944 |   |   |   | 58 |   |   |   | - |   |   |   | 9,002 |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Functional currency translation adjustments |   |              | (452    | ) |   |   | (5,746 | ) |   |   | (556 | ) |   |   | - |   |   |   | (6,754 | ) |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2008                     |   | $                 | 173,313 |   |   | $ | 50,667 |   |   | $ | 1,981 |   |   | $ | 219,543 |   |   | $ | 445,504 |   |

|                                        |   | December 31, 2009 |    |
|---------------------------------------------|--------|-------------------|---------|
|                                        |   | Americas          |    |   | EMEA |   |   | APAC |   |   | Actimize |   |   | Total |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2008                     |   | $                 | 173,313 |   |   | $ | 50,667 |   |   | $ | 1,981 |   |   | $ | 219,543 |   |   | $ | 445,504 |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                |   |              | -       |   |   |   | 3,379 |   |   |   | - |   |   |   | 41,970 |   |   |   | 45,349 |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Functional currency translation adjustments |   |              | 305     |   |   |   | 2,805 |   |   |   | 616 |   |   |   | (81 | ) |   |   | 3,645 |   |
|                                        |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2009                     |   | $                 | 173,618 |   |   | $ | 56,851 |   |   | $ | 2,597 |   |   | $ | 261,432 |   |   | $ | 494,498 |   |

| NOTE 10:- | ACCRUED EXPENSES AND OTHER LIABILITIES |
|-----------|----------------------------------------|

|                                          |   | December 31, |    |
|-----------------------------------------------|--------|--------------|---------|
|                                          |   | 2008         |    |   | 2009 |   |
|                                          |   |         |    |   |   |   |
| Employees and payroll accruals                |   | $            | 42,699  |   |   | $ | 45,251 |   |
| Accrued expenses                              |   |         | 51,472  |   |   |   | 53,377 |   |
| Deferred revenues and advances from customers |   |         | 107,612 |   |   |   | 121,515 |   |
| Government authorities                        |   |         | 31,348  |   |   |   | 35,607 |   |
| Other                                         |   |         | 3,874   |   |   |   | 5,769 |   |
|                                          |   |         |    |   |   |   |   |   |
|                                          |   | $            | 237,005 |   |   | $ | 261,519 |   |

----

----

| NOTE 11:- | DERIVATIVE INSTRUMENTS |
|-----------|------------------------|

|   | The Company's risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ASC 815, "Derivatives and Hedging" (formerly SFAS No. 133), 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 1, 2009, the Company adopted the updated guidance of ASC 815 with respect to disclosure requirements (formerly SFAS No. 161, an amendment to SFAS No. 133) which changed the disclosure requirements for derivative instruments and hedging activities and require enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows.  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company entered into derivative instrument arrangements to hedge a portion of anticipated new Israeli Shekel ("NIS") payroll payments and to hedge forecasted Euro payments received from construction-type contract net from Euro payments to sub-contractors. These derivative instruments are designated as cash flows hedges, as defined by ASC 815. The transactions to hedge salary payments and net receivables from construction-type contract are made on denominated amounts that are no more than forecasted cash flows for salaries and benefits and forecasted net receivables from construction-type contract according to the Company's budget and on the dates that the cash flows are expected to be paid or received. Therefore, those transactions are all effective and the results are recorded as payroll expenses or as revenues and cost of revenues, respectively, at the time that the hedged expense/income is recorded. The Company does not enter into derivative transactions for trading purposes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 accumulated other comprehensive income (loss) and reclassified into earnings in the line item associated with the hedged transaction in the 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 the period of change. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                   |   | Notional amount |   |   | Fair value   |   |
|--------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|
|                                                   |   | December 31,    |   |   | December 31, |   |
|                                                   |   | 2008            |   |   | 2009         |   |   | 2008 |   |   | 2009 |   |
|                                                   |   |            |   |   |         |   |   |   |   |   |   |   |
| Option contracts to hedge payroll expenses             |   | $               | 25,000 |   |         | $      | 28,200 |   |   | $ | (370 | ) |   | $ | 187 |   |
| Forward contracts to hedge payroll expenses            |   |            | 30,500 |   |         |   | 16,100 |   |   |   | (987 | ) |   |   | (77 | ) |
| Forward contracts to hedge construction-type contracts |   |            | -      |   |         |   | 11,668 |   |   |   | - |   |   |   | (178 | ) |
|                                                   |   |            |   |   |         |   |   |   |   |   |   |   |   |   |   |   |
|                                                   |   | $               | 55,500 |   |         | $      | 55,968 |   |   | $ | (1,357 | ) |   | $ | (68 | ) |

----

----

| NOTE 11:- | DERIVATIVE INSTRUMENTS (Cont.) |
|-----------|--------------------------------|

|   | The Company currently hedges its exposure to the variability in future cash flows for a maximum period of one year. At December 31, 2009, the Company expects to reclassify all of the net losses on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The fair value of the Company's outstanding derivative instruments at December 31, 2008 and 2009 is summarized below: |
|--------|-----------------------------------------------------------------------------------------------------------------------|

|                               |                                   |   | Fair value of derivative instruments |   |
|------------------------------------|----------------------------------------|--------|--------------------------------------|--------|
|                               |                                   |   | December 31,                         |   |
|                               | Balance sheet location                 |   | 2008                                 |   |   | 2009 |   |
| Derivative assets:                 |                                   |   |                                 |   |   |   |   |
|                               |                                   |   |                                 |   |   |   |   |
| Foreign exchange option contracts  |                                   |   | $                                    | 282    |   |   | $ | 262 |   |
| Foreign exchange forward contracts |                                   |   |                                 | 94     |   |   |   | 217 |   |
|                               |                                   |   |                                 |   |   |   |   |   |   |
|                               |                                   |   | $                                    | 376    |   |   | $ | 479 |   |
| Derivative liabilities:            |                                   |   |                                 |   |   |   |   |   |   |
|                               |                                   |   |                                 |   |   |   |   |   |   |
| Foreign exchange option contracts  |                                   |   | $                                    | (653   | ) |   | $ | (75 | ) |
| Foreign exchange forward contracts |                                   |   |                                 | (1,080 | ) |   |   | (472 | ) |
|                               |                                   |   |                                 |   |   |   |   |   |   |
|                               |                                   |   | $                                    | (1,733 | ) |   | $ | (547 | ) |
|                               |                                   |   |                                 |   |   |   |   |   |   |
| Derivative assets                  | Other receivables and prepaid expenses |   | $                                    | -      |   |   | $ | 187 |   |
| Derivative liabilities             | Accrued expenses and other liabilities |   | $                                    | (1,357 | ) |   | $ | (255 | ) |

|   | The effect of derivative instruments in cash flow hedging relationship on income and other comprehensive income for the years ended December 31, 2007, 2008 and 2009 is summarized below: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | Amount of gain (loss) recognized in OCI on derivative (effective portion) |   |
|------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                           |   | Year ended December 31,                                                   |   |
|                                           |   | 2007                                                                      |   |   | 2008 |   |   | 2009 |   |
| Derivatives in cash flow hedging relationship: |   |                                                                      |   |   |   |   |   |   |   |
|                                           |   |                                                                      |   |   |   |   |   |   |   |
| Foreign exchange option contracts              |   | $                                                                         | 93     |   |   | $ | (605 | ) |   | $ | (169 | ) |
| Foreign exchange forward contracts             |   |                                                                      | (93    | ) |   |   | (3,126 | ) |   |   | 2,441 |   |
|                                           |   |                                                                      |   |   |   |   |   |   |   |   |   |   |
|                                           |   | $                                                                         | -      |   |   | $ | (3,731 | ) |   | $ | 2,272 |   |

----

----

| NOTE 11:- | DERIVATIVE INSTRUMENTS (Cont.) |
|-----------|--------------------------------|

|                               |                                    |   | Amount of gain (loss) reclassified from OCI into income (expenses) (effective portion) |   |
|------------------------------------|-----------------------------------------|--------|----------------------------------------------------------------------------------------|--------|
| Derivative in cash flow            | Statements of                           |   | Year ended December 31,                                                                |   |
| hedging relationship:              | income line item                        |   | 2007                                                                                   |   |   | 2008 |   |   | 2009 |   |
|                               |                                    |   |                                                                                   |   |   |   |   |   |   |   |
| Foreign exchange option contracts  | Cost of revenues and operating expenses |   | $                                                                                      | (93    | ) |   | $ | 246 |   |   | $ | 670 |   |
| Foreign exchange forward contracts | Cost of revenues and operating expenses |   |                                                                                   | 503    |   |   |   | 2,047 |   |   |   | (2,665 | ) |
|                               |                                    |   |                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                               |                                    |   | $                                                                                      | 410    |   |   | $ | 2,293 |   |   | $ | (1,995 | ) |

|   | The ineffective portion of the change in fair value of a cash flow hedge for the years ended December 31, 2007, 2008 and 2009 amounted to $ 0, $ 0 and $ 30, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 12:- | COMMITMENTS AND CONTINGENT LIABILITIES |
|-----------|----------------------------------------|

|   | a. | Lease commitments: |
|--------|----|--------------------|

|   | The Company leases office space, office equipment and various 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, were as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------|

| 2010                |   | $      | 15,552 |   |
|---------------------|--------|--------|--------|--------|
| 2011                |   |   | 11,693 |   |
| 2012                |   |   | 8,747  |   |
| 2013                |   |   | 1,692  |   |
| 2014                |   |   | 1,523  |   |
| 2015 and thereafter |   |   | 5,005  |   |
|                |   |   |   |   |
|                |   | $      | 44,212 |   |

|   | Rent expenses for the years 2007, 2008 and 2009 were approximately $ 10,531, $ 13,286 and $ 13,982, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Company leases its motor vehicles under cancelable operating lease agreements. The minimum payment under these operating leases, upon cancellation of these lease agreements was $ 1,432 as of December 31, 2009. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Lease expenses for motor vehicles for the years 2007, 2008 and 2009 were $ 4,041, $ 5,387 and $ 5,249, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
|--------|----------------------------------------------------------|

|   | b. | Other commitments: |
|--------|----|--------------------|

|   | The Company is obligated under certain agreements with its suppliers to purchase goods and under an agreement with its manufacturing subcontractor to purchase projected inventory and excess inventory. Non cancelable obligations, net of provisions, as of December 31, 2009, were $ 2,658. These obligations will be fulfilled during 2010. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | On October 19, 2004, CipherActive filed an action against the Company in the District Court of Tel Aviv, State of Israel. In this lawsuit, CipherActive claimed that under a development agreement with the Company, it was entitled to receive license fees in respect of certain software that it allegedly developed for the Company. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The parties submitted the matter to a binding arbitration. The arbitration agreement approved by the Court and in September 2009, the arbitrator awarded CipherActive damages in the amount of $ 188 (in original value) plus VAT and trial expenses. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | On September 3, 2008, Multi-Format, Inc. filed a lawsuit against Harrah's Entertainment, Inc. and NICE Systems, Inc, a wholly owned subsidiary of the Company, in the United States District Court for the District of New Jersey, alleging infringement of a U.S. patent and requesting damages. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The parties agreed to settle the litigation, and on June 18, 2009, the Court entered an order dismissing the case. On July 20, 2009, the parties executed a settlement agreement and thus, the matter is closed. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On July 20, 2004, S.T.S. Software Systems Ltd. ("STS") filed a lawsuit in the U.S. District Court for the Southern District of New York charging Witness Systems, Inc. ("Witness") with infringement of VoIP patents in the U.S. The Court dismissed the claim and determined that Witness does not infringe the Company's patents. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 30, 2004, Witness filed a patent infringement action in the Federal Court for the Northern District of Georgia against NICE Systems, Inc.  and on January 19, 2006, Witness filed an additional patent infringement action in the Federal Court for the Northern District of Georgia against the Company and NICE Systems, Inc. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On May 10, 2006, NICE and NICE Systems, Inc. filed a new patent infringement lawsuit against Witness Systems, Inc. in the United States District Court for District of Delaware. This lawsuit went to trial before a jury on January 14, 2008. The jury deadlocked and on January 25, 2008 and a mistrial was declared. The Company filed a motion for a new trial date for the case. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 1, 2008, the Company and Verint Systems Inc. entered into an agreement to settle and dismiss all of the above patent disputes (which had been commenced with Witness Systems, Inc. prior to its acquisition by Verint). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
|--------|----------------------------------------------------------|

|   | 4. | On July 27, 2004, Dictaphone Corp. (which was acquired by the Company) filed an action against VoicePrint in the United States District Court for the Central District of California asserting the infringement by VoicePrint of two U.S patents. The Company subsequently acquired these patents from Dictaphone as part of its acquisition. The parties were unable to reach a settlement agreement and the Company decided to abandon this litigation. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | In December 2006, Calyon Corporate and Investment Bank ("Calyon") filed a suit against the Company in the District Court of Tel Aviv, demanding repayment of $ 648 plus accrued interest, in the total amount of $ 740. The Company deducted this amount in January 2004 from a payment transferred from an account of Thales maintained with Calyon to the Company's account, at the instruction of Thales, in connection with the acquisition of Thales Contact Solutions ("TCS") from Thales. The Company had notified TCS in 2004 that it had setoff such amount with respect to an overdue payment by TCS to the Company. The dispute was submitted to mediation, however the mediation process failed and the proceedings were returned to the District Court of Tel Aviv. This lawsuit is in its initial stages, preliminary hearings took place on September 3, 2009 and March 9, 2010 and the parties are to file their depositions. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | On March 9, 2007, Formatest AG filed a claim against NICE Switzerland AG, a wholly owned subsidiary of the Company, in the Cantonal Court of Zug, Switzerland. The claim was in the amount of approximately $ 1,600 (€ 1,187,793), plus interest at 5% per annum, and was made in connection with an agreement dated December 10, 2004 between FAST Video Security AG (now NICE Switzerland AG) and Formatest AG. On June 19, 2007, the Company and Formatest AG entered into an agreement settling all claims. The Company believes it is entitled to recover all or a substantial part of the settlement amount paid to Formatest AG (with the addition of legal costs), under the terms of indemnification provision contained in the sale and purchase agreement between the selling shareholders of FAST Video Security AG ("the Sellers") and the Company dated November 16, 2006 ("the Agreement"). On December 18, 2007, the Sellers issued a Notice of Arbitration in the Zurich Chamber of Commerce. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Prior to the commencement of the arbitration proceedings, the Company released to the Sellers a partial payment of $ 1,400 out of the escrow funds and paid to the Sellers the amount of $ 1,229. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On June 23, 2008, the Sellers filed their statement of claim, asking for payment of $ 1,600 (representing the balance of the escrow funds) plus additional amounts for interest, losses on the exchange rates and legal costs and expenses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On April 30, 2009, the Company and the Sellers entered into a settlement agreement. Pursuant to the joint application of the Company and the Sellers, the arbitration proceedings were closed by a termination order dated June 8, 2009. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
|--------|----------------------------------------------------------|

|   | 7. | On September 16, 2009, Fair Isaac Corporation ("FICO") filed a claim in the United States District Court for the District of Delaware against Actimize Inc. and the Company, claiming that Actimize and the Company are infringing two U.S. patents.  These patents cover various aspects of fraud detection. FICO requested damages and an injunction. On December 17, 2009, the parties agreed to dismiss the Company from the action. On December 21, 2009, Actimize filed a response and counterclaims. On January 25, 2010, Actimize filed an amended response and counterclaims. The parties jointly submitted a proposed scheduling order to the court on January 12, 2010. The parties are currently engaged in fact discovery. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | Labor disputes: |
|--------|----|-----------------|

|   | On October 15, 2007, a former employee of Actimize Ltd., a wholly owned subsidiary of the Company, filed a claim with the Tel Aviv District Labor Court, seeking a declaration, that he is entitled to 0.5% of the outstanding share capital of Actimize Ltd. The preliminary stages of the claim ended and the parties submitted their testimonies by way of written affidavits. The hearing and cross-examination of the testimonies is scheduled to take place on June 16, 2010. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On August 19, 2009, a former employee of Nice Systems, Inc. sent Nice Systems, Inc. a letter alleging unlawful termination of employment on the grounds of discrimination.   The Company is in the process of assessing and responding to the letter. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On October 20, 2009, a former employee of IEX Corp. a wholly owned subsidiary of the Company filed a charge in the Chicago office of the Equal Employment Opportunity Commission against IEX Corp. and "NICE Systems Corp." alleging that the companies engaged in prohibited discrimination in terminating his employment. A response to the charge was filed, denying the allegations. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 9. | Around December 31, 2008, NICE Systems, Inc. received a letter from Plant CML ("Plant"), a distributor of NICE Systems, Inc., asserting several indemnity claims against the Company. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | To date, Plant has taken no further action and has made no further demands and, therefore, the Company does not consider this dispute as outstanding anymore. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10. | The Company is involved in various other legal proceedings arising in the normal course of its business. Based upon the advice of counsel, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 11. | On March 10, 2010, Nuvation Research Corporation ("Nuvation") filed a lawsuit against the Company with the Supreme Court of the State of New York. The lawsuit alleges, among others, that the Company breached a contract with Nuvation, defrauded Nuvation and taken advantage of it. Nuvation is claiming damages in a total amount of $ 7,000. The Company is in an initial stage of assessing the facts and merits of these claims. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 13:- | TAXES ON INCOME |
|-----------|-----------------|

|   | a. | Israeli taxation: |
|--------|----|-------------------|

|   | 1. | Corporate tax rates in Israel: |
|--------|----|--------------------------------|

|   | Taxable income of Israeli companies is subject to tax at the rate of 27% in 2008, 26% in 2009, 25% in 2010,  24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and thereafter. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 ("the Law"): |
|--------|----|---------------------------------------------------------------------------------------------------|

|   | Various industrial projects of NICE and its Israeli subsidiary have been granted "Approved Enterprise" and "Privileged Enterprise" status, which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Approved Enterprise and Privileged Enterprise benefits is taxed at a regular rate. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In the event of distribution of dividends from the said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise's income. The tax-exempt income attributable to the "Approved Enterprise" programs mentioned above can be distributed to shareholders without subjecting the Company to taxes only upon the complete liquidation of NICE or its Israeli subsidiary. Tax-exempt income generated under the Company's Privileged Enterprise program will be subject to taxes upon dividend distribution or complete liquidation. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the Law and regulations published thereunder. Should the Company fail to meet such requirements in the future, income attributable to its Approved Enterprise and Privileged Enterprise programs could be subject to the statutory Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such programs. As of December 31, 2009, management believes that the Company is in compliance with all the conditions required by the Law. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company does not intend to distribute any amounts of its undistributed tax exempt income as dividends as it intends to reinvest its tax-exempt income within the Company. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Approved or Privileged Enterprise programs as the undistributed tax exempt income is essentially permanent in duration. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, approximately $ 189,300 is tax-exempt attributable to its various Approved and Privileged Enterprise programs. If such tax exempt income is distributed (other than in respect of the Approved Enterprise programs upon the complete liquidation of the Company), it would be taxed at the reduced corporate tax rate applicable to such profits (between 10%-25%) and an income tax liability of approximately $ 32,800 would be incurred as of December 31, 2009. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Tax benefits under the Israeli Law for the Encouragement of Industry (Taxation), 1969: |
|--------|----|----------------------------------------------------------------------------------------|

|   | NICE is an "Industrial Company" as defined by 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 for tax purposes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 13:- | TAXES ON INCOME (Cont.) |
|-----------|-------------------------|

|   | b. | Income taxes on non-Israeli subsidiaries: |
|--------|----|-------------------------------------------|

|   | Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the Company's foreign subsidiaries. This is because the Company intends to permanently reinvest undistributed earnings in the foreign subsidiaries in which those earnings arose. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Net operating loss carryforward: |
|--------|----|----------------------------------|

|   | As of December 31, 2009, the Company had tax loss carry-forwards totaling approximately $ 88,300 which can be carried forward and offset against taxable income with expiration dates ranging from 2009 and onwards. Approximately $ 61,100 of these carry-forward tax losses have no expiration date. The balance expires between 2010 and 2029. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Utilization of U.S. net operating losses may be subject to 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 increasing taxes before utilization. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Deferred tax assets and liabilities: |
|--------|----|--------------------------------------|

|   | Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | December 31, |    |
|------------------------------------------------|--------|--------------|---------|
|                                           |   | 2008         |    |   | 2009 |   |
| Deferred tax assets:                           |   |         |    |   |   |   |
| Net operating losses carryforward              |   | $            | 11,890  |   |   | $ | 30,387 |   |
| Acquired intangibles                           |   |         | 5,340   |   |   |   | 3,749 |   |
| Share based payments                           |   |         | 4,977   |   |   |   | 6,977 |   |
| Other                                          |   |         | 13,648  |   |   |   | 8,677 |   |
|                                           |   |         |    |   |   |   |   |   |
| Deferred tax assets before valuation allowance |   |         | 35,855  |   |   |   | 49,790 |   |
| Valuation allowance                            |   |         | (17,760 | ) |   |   | (18,316 | ) |
|                                           |   |         |    |   |   |   |   |   |
| Deferred tax assets                            |   |         | 18,095  |   |   |   | 31,474 |   |
|                                           |   |         |    |   |   |   |   |   |
| Deferred tax liabilities:                      |   |         |    |   |   |   |   |   |
| Acquired intangibles                           |   |         | (39,382 | ) |   |   | (43,990 | ) |
|                                           |   |         |    |   |   |   |   |   |
| Deferred tax liabilities, net                  |   | $            | (21,287 | ) |   | $ | (12,516 | ) |

|   | The Company has provided valuation allowances in respect of certain deferred tax assets resulting from tax loss carry forwards and other reserves and allowances due to uncertainty concerning realization of these deferred tax assets. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 13:- | TAXES ON INCOME (Cont.) |
|-----------|-------------------------|

|   | e. | A reconciliation of the Company's effective tax rate to the statutory tax rate in Israel is as follows: |
|--------|----|---------------------------------------------------------------------------------------------------------|

|                                                                                                                       |   | Year ended December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                       |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                                                                                                       |   |                    |   |   |   |   |   |   |   |
| Income before taxes on income, as reported in the consolidated statements of income                                        |   | $                       | 47,634 |   |   | $ | 48,587 |   |   | $ | 45,796 |   |
|                                                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Statutory tax rate in Israel                                                                                               |   |                    | 29     | % |   |   | 27 | % |   |   | 26 | % |
| Approved and Privileged Enterprise benefits *)                                                                             |   |                    | (10.1  | )% |   |   | (11.9 | )% |   |   | (10.1 | )% |
| Changes in valuation allowance                                                                                             |   |                    | (1.4   | )% |   |   | 6.2 | % |   |   | 0.1 | % |
| Earnings taxed under foreign law                                                                                           |   |                    | (2.6   | )% |   |   | 1.4 | % |   |   | (4.5 | )% |
| Acquired in-process research and development                                                                               |   |                    | 2.3    | % |   |   | - |   |   |   | - |   |
| Other                                                                                                                      |   |                    | 4.3    | % |   |   | (3.2 | )% |   |   | (4.9 | )% |
|                                                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Effective tax rate                                                                                                         |   |                    | 21.5   | % |   |   | 19.5 | % |   |   | 6.6 | % |
|                                                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| *) Net earnings per Ordinary share - amounts of the benefit resulting from the "Approved and Privileged Enterprise" status |   |                    |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                      |   | $                       | 0.09   |   |   | $ | 0.10 |   |   | $ | 0.08 |   |
|                                                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                                                    |   | $                       | 0.09   |   |   | $ | 0.09 |   |   | $ | 0.07 |   |

|   | f. | Income before taxes on income is comprised as follows: |
|--------|----|--------------------------------------------------------|

|     |   | Year ended December 31, |   |
|----------|--------|-------------------------|--------|
|     |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|     |   |                    |   |   |   |   |   |   |   |
| Domestic |   | $                       | 27,506 |   |   | $ | 36,000 |   |   | $ | 37,976 |   |
| Foreign  |   |                    | 20,128 |   |   |   | 12,587 |   |   |   | 7,820 |   |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
|     |   | $                       | 47,634 |   |   | $ | 48,587 |   |   | $ | 45,796 |   |

|   | g. | Taxes on income are comprised as follows: |
|--------|----|-------------------------------------------|

|     |   | Year ended December 31, |   |
|----------|--------|-------------------------|--------|
|     |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
| Current  |   | $                       | 10,516 |   |   | $ | 14,290 |   |   | $ | 9,055 |   |
| Deferred |   |                    | (262   | ) |   |   | (4,810 | ) |   |   | (6,015 | ) |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
|     |   | $                       | 10,254 |   |   | $ | 9,480 |   |   | $ | 3,040 |   |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Domestic |   | $                       | 4,254  |   |   | $ | 4,646 |   |   | $ | 4,255 |   |
| Foreign  |   |                    | 6,000  |   |   |   | 4,834 |   |   |   | (1,215 | ) |
|     |   |                    |   |   |   |   |   |   |   |   |   |   |
|     |   | $                       | 10,254 |   |   | $ | 9,480 |   |   | $ | 3,040 |   |

----

----

| NOTE 13:- | TAXES ON INCOME (Cont.) |
|-----------|-------------------------|

|   | h. | Uncertain tax positions: |
|--------|----|--------------------------|

|   | A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------|

|                                        |   | December 31, |   |
|---------------------------------------------|--------|--------------|--------|
|                                        |   | 2008         |   |   | 2009 |   |
|                                        |   |         |   |   |   |   |
| Uncertain tax positions, beginning of year  |   | $            | 14,919 |   |   | $ | 25,456 |   |
| Increases in tax positions for prior years  |   |         | 3,080  |   |   |   | 2,159 |   |
| Decreases in tax positions for prior years  |   |         | (391   | ) |   |   | (239 | ) |
| Increases in tax positions for current year |   |         | 7,848  |   |   |   | 8,140 |   |
| Settlements                                 |   |         | -      |   |   |   | (3,620 | ) |
|                                        |   |         |   |   |   |   |   |   |
| Uncertain tax positions, end of year        |   | $            | 25,456 |   |   | $ | 31,896 |   |

|   | Unrecognized tax benefits included $ 31,077 of tax benefits, which if recognized, would reduce the Company's annual effective tax rate. The Company has further accrued $ 958 of accrued interest related to uncertain tax positions as of December 31, 2009. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2009, the Company is subject to Israeli income tax audits for the tax years 2004 through 2009, to U.S. federal income tax audits for the tax years of 2003 through 2009 and to other income tax audits for the tax years of 2006 through 2009. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 14:- | SHAREHOLDERS' EQUITY |
|-----------|----------------------|

|   | a. | The Ordinary shares of the Company are traded on the Tel-Aviv Stock Exchange and its ADS's are traded on NASDAQ. |
|--------|----|------------------------------------------------------------------------------------------------------------------|

|   | In 2007, the Company completed a secondary public offering of its ADS's on NASDAQ. The Company issued 5,175,000 shares at a price of $ 35.02 per share before issuance expenses. Total net proceeds from the issuance amounted to approximately $ 180,829. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Share option plans: |
|--------|----|---------------------|

|   | In 2003, the Company adopted the 2003 Stock Option Plan ("the 2003 Option Plan"). Under the 2003 Option Plan, employees and officers of the Company may be granted options to acquire 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 grant date, subject to certain exceptions, which may be determined by the Company's Board of Directors. Generally, under the terms of the 2003 Option Plan, 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. Stock options expire six years after the date of grant. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 14:- | SHAREHOLDERS' EQUITY (Cont.) |
|-----------|------------------------------|

|   | Pursuant to the terms of the acquisition of Actimize Ltd. in August 2007, the Company assumed and replaced the stock options and restricted shares granted by Actimize. In 2003, Actimize adopted the 2003 Omnibus Stock Option and Restricted Stock Incentive Plan ("the 2003 Actimize Plan"). Under the 2003 Actimize Plan, the grantees could be granted options to acquire Actimize's Ordinary shares, restricted shares and shares. Incentive stock options to acquire Ordinary shares of Actimize were granted at an exercise price not less than the fair market value of the Ordinary shares of Actimize on the date of grant or as determined by Actimize's board of directors or by a committee thereof. In addition, the options were granted at an exercise price of not less than the par value of the Ordinary shares of Actimize. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Generally, under the terms of the 2003 Actimize Plan, 25% of the options granted become exercisable on the first anniversary of the date of grant and 6.25% become exercisable following the lapse of every consecutive quarter thereafter during the subsequent three years. Options generally expire ten years after the date of grant. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In June 2008, the Company adopted the 2008 Share Incentive Plan ("the 2008 Plan"), to provide incentives to employees, directors, consultants and/or contractors by rewarding performance and encouraging behavior that will improve the Company's profitability. Under the 2008 Plan, the Company's employees, directors, consultants and/or contractors may be granted any equity-related award, including any type of an option to acquire the Company's Ordinary shares and/or share appreciation right and/or share and/or restricted share and/or restricted share unit and/or other share unit and/or other share-based award and/or other right or benefit under the 2008 Plan (each an "Award"). 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 the Company's Board of Directors, including in some cases options granted with an exercise price of zero. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Generally, under the terms of the 2008 Plan, 25% of an Award 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. Specifically with respect to restricted share units, unless determined otherwise by the Board of Directors, 25% of the restricted share units granted become vested on each of the four consecutive annual anniversaries following the date of grant. Awards with a vesting period expire six years after the date of grant. The 2008 Plan provides that the maximum number of shares that may be subject to Awards granted under the 2008 Plan shall be an amount per calendar year, equal to 3.5% of the Company's issued and outstanding share capital as of December 31 of the preceding calendar year. Such amount is reset for each calendar year. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 14:- | SHAREHOLDERS' EQUITY (Cont.) |
|-----------|------------------------------|

|   | The fair value of the Company's stock options granted to employees and directors for the years ended December 31, 2007, 2008 and 2009 was estimated using the following assumptions: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        |   | 2007   |       |   | 2008   |   |       | 2009   |   |
|-----------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                        |   |   |       |   |   |   |       |   |   |
| Expected volatility         |   |   | 32.5%-37.9 | %      |   |   | 32.5%-39.8 | %      |   |   | 42.6%-47.7 | % |
| Weighted average volatility |   |   | 37.5       | %      |   |   | 34.2       | %      |   |   | 44.7 | % |
| Risk free interest rate     |   |   | 3.3%-4.6   | %      |   |   | 1.7%-3.1   | %      |   |   | 1.2%-2.1 | % |
| Expected dividend           |   |   | 0          | %      |   |   | 0          | %      |   |   | 0 | % |
| Expected term (in years)    |   |   | 2.5-3.7    |   |   |   | 2.5-3.7    |   |   |   | 2.5-3.7 |   |

|   | A summary of the Company's stock options activity and related information for the year ended December 31, 2009, is as follows:  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|                              |   | Number of options |       |   | Weighted-average exercise price |   |   | Weighted- average remaining contractual term (in years) |   |   | Aggregate intrinsic value |   |
|-----------------------------------|--------|-------------------|------------|--------|---------------------------------|--------|--------|---------------------------------------------------------|--------|--------|---------------------------|--------|
|                              |   |              |       |   |                            |   |   |                                                    |   |   |                      |   |
| Outstanding at January 1, 2009 *) |   |              | 6,820,974  |   |                            | $      | 26.33  |                                                    |   |   | 4.3                       |   |   | $ | 15,745 |   |
| Granted                           |   |              | 1,767,050  |   |                            | $      | 27.66  |                                                    |   |   |                      |   |   |   |   |   |
| Granted upon exchange**)          |   |              | 576,454    |   |                            | $      | 10.50  |                                                    |   |   |                      |   |   |   |   |   |
| Exercised                         |   |              | (1,164,465 | )      |                            | $      | 16.80  |                                                    |   |   |                      |   |   |   |   |   |
| Forfeited                         |   |              | (388,860   | )      |                            | $      | 28.40  |                                                    |   |   |                      |   |   |   |   |   |
| Cancelled                         |   |              | (62,533    | )      |                            | $      | 41.21  |                                                    |   |   |                      |   |   |   |   |   |
| Cancelled upon exchange **)       |   |              | (1,757,204 | )      |                            | $      | 34.68  |                                                    |   |   |                      |   |   |   |   |   |
|                              |   |              |       |   |                            |   |   |                                                    |   |   |                      |   |   |   |   |   |
| Outstanding at December 31, 2009  |   |              | 5,791,416  |   |                            | $      | 22.94  |                                                    |   |   | 4.3                       |   |   | $ | 48,387 |   |
|                              |   |              |       |   |                            |   |   |                                                    |   |   |                      |   |   |   |   |   |
| Exercisable at December 31, 2009  |   |              | 2,276,901  |   |                            | $      | 22.34  |                                                    |   |   | 2.8                       |   |   | $ | 20,882 |   |

|   | *) | On June 15, 2009, the Company repriced 1,020,400 outstanding options that were granted on September 2, 2008, from their previous exercise price of $ 30.25 to an exercise price of $ 22.53. The Company accounted for the re-pricing as a modification and recorded an additional compensation expense, in the amount of $ 2,082, which will be recognized over the remaining vesting period or immediately for vested options. During 2009, the Company recognized $ 1,150 out of the total additional compensation expenses related to this modification. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **) | On August 5, 2009, pursuant to a tender offer of June 23, 2009, the Company exchanged on a three-for-one basis 1,492,204 options at exercise prices above $ 30 into 311,454 options and 185,932 RSU's (at par value). The new awards vest in 25% annual increments over a four-year period and have a new six-year term. The Company accounted for the exchange of option as a modification and recorded total incremental costs in the amount of $ 4,684 out of which $ 884 were recorded during 2009. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 14:- | SHAREHOLDERS' EQUITY (Cont.) |
|-----------|------------------------------|

|   | On June 15, 2009, the Company's Board of Directors resolved to approve a privately negotiated transaction with certain executive officers, pursuant to which the Company exchanged 265,000 options granted in 2007 having an exercise price per share ranging between $ 34.00 and $ 39.00 with new options having an exercise price per share equal to $ 22.53. The new options will vest in 25% annual increments over a four-year period from the new grant date and will expire six years following the new grant date. The Company accounted for the exchange as a modification and recorded an additional compensation expense, in the amount of $ 1,140, which will be recognized over the new vesting period. During 2009, the Company recognized $ 307 out of the total additional compensation expenses related to this modification. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The weighted-average grant-date fair value of options granted during the years 2007, 2008 and 2009 was $ 11.8, $ 8.6 and $ 10.43, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The total intrinsic value of options exercised during the years 2007, 2008 and 2009 was $ 40,735, $ 16,818 and $ 13,457, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The options outstanding under the Company's Stock Option Plans as of December 31, 2009 have been separated into ranges of exercise price 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 |        |   | 2009         |   |      | term        |   |   | price    |   |   | 2009         |   | exercisable |   |
|           |        |   |         |   |      | (Years)     |   |   |  $  |   |   |         |   |        | $      |   |
|           |        |   |         |   |      |        |   |   |     |   |   |         |   |        |   |   |
| $              | 0.02        |   |         |   | 1,105     |        |   |   | 3.66     |   |   |         | 0.02   |        |   |   | 1,105 |   |   | 0.02 |   |
| $              | 0.26        |   |         |   | 432,346   |        |   |   | 5.57     |   |   |         | 0.26   |        |   |   | 2,597 |   |   | 0.26 |   |
| $              | 2.46-2.89   |   |         |   | 34,396    |        |   |   | 4.92     |   |   |         | 2.81   |        |   |   | 34,396 |   |   | 2.81 |   |
| $              | 6.00-6.87   |   |         |   | 109,072   |        |   |   | 6.60     |   |   |         | 6.62   |        |   |   | 76,397 |   |   | 6.57 |   |
| $              | 9.67-14.04  |   |         |   | 151,784   |        |   |   | 1.48     |   |   |         | 10.38  |        |   |   | 132,912 |   |   | 10.06 |   |
| $              | 14.60-21.76 |   |         |   | 898,681   |        |   |   | 2.89     |   |   |         | 18.12  |        |   |   | 710,997 |   |   | 17.64 |   |
| $              | 22.53-32.31 |   |         |   | 3,782,034 |        |   |   | 4.60     |   |   |         | 26.65  |        |   |   | 1,052,199 |   |   | 25.77 |   |
| $              | 34.78-36.27 |   |         |   | 381,998   |        |   |   | 3.08     |   |   |         | 34.79  |        |   |   | 266,298 |   |   | 34.79 |   |
|           |        |   |         |   |      |        |   |   |     |   |   |         |   |        |   |   |   |   |   |   |   |
|           |        |   |         |   | 5,791,416 |        |   |   | 4.26     |   |   |         | 22.94  |        |   |   | 2,276,901 |   |   | 22.34 |   |

|   | A summary of the Company's Restricted Stock Awards ("RSA") activity and related information for the year ended December 31, 2009, is as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|                             |   | Number of RSA |     |   | Weighted average exercise price |   |
|----------------------------------|--------|---------------|----------|--------|---------------------------------|--------|
|                             |   |          |     |   |                            |   |
| Outstanding at January 1, 2009   |   |          | 186,064  |   |                            | $      | 0.93 |   |
| Vested                           |   |          | (107,376 | )      |                            | $      | 1.02 |   |
| Forfeited                        |   |          | (1,587   | )      |                            | $      | 0.02 |   |
|                             |   |          |     |   |                            |   |   |   |
| Outstanding at December 31, 2009 |   |          | 77,101   |   |                            | $      | 0.83 |   |

|   | As of December 31, 2009, there was approximately $ 23,668 and $ 2,924 of unrecognized compensation expense related to non-vested stock options and restricted stock awards, respectively, expected to be recognized over two years. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 14:- | SHAREHOLDERS' EQUITY (Cont.) |
|-----------|------------------------------|

|   | A summary of the Company's Restricted Stock Units ("RSU") activity and related information for the year ended December 31, 2009, is as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|                             |   | Number of RSU |    |   | Weighted average exercise price |   |
|----------------------------------|--------|---------------|---------|--------|---------------------------------|--------|
|                             |   |          |    |   |                            |   |
| Outstanding at January 1, 2009   |   |          | 6,500   |   |                            | $      | 0.26 |   |
| Issued                           |   |          | 249,934 |   |                            | $      | 0.26 |   |
| Exercised                        |   |          | (1,625  | )      |                            | $      | 0.26 |   |
| Cancelled                        |   |          | (2,500  | )      |                            | $      | 0.26 |   |
| Forfeited                        |   |          | (9,933  | )      |                            | $      | 0.26 |   |
|                             |   |          |    |   |                            |   |   |   |
| Outstanding at December 31, 2009 |   |          | 242,376 |   |                            | $      | 0.26 |   |

|   | c. | Employee Stock Purchase Plan: |
|--------|----|-------------------------------|

|   | Eligible employees under the Employee Stock Purchase Plan ("ESPP") can have between 2% to 10% of their earnings withheld, under certain limitations, to be used to purchase Ordinary shares. Commencing January 1, 2006, the price of Ordinary shares purchased under the ESPP is equal to 95% of the fair market value of the Ordinary shares. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2007, 2008 and 2009, employees purchased 16,041, 17,613 and 17,331 shares at average prices of $ 31.08, $ 30.14 and $ 21.59 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NOTE 15:- | REPORTABLE SEGMENTS, PRODUCT LINES AND MAJOR CUSTOMER DATA |
|-----------|------------------------------------------------------------|

|   | a. | Reportable segments: |
|--------|----|----------------------|

|   | The Company operates under several reportable segments. The following tables present the financial information of the Company's reportable segments. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|                    |   | Year ended December 31, 2007 |    |
|-------------------------|--------|------------------------------|---------|
|                    |   | Americas                     |    |   | EMEA*) |   |   | APAC**) |   |   | Actimize |   |   | Not allocated |   |   | Total |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                |   | $                            | 283,009 |   |   | $ | 149,913 |   |   | $ | 72,894 |   |   | $ | 11,558 |   |   | $ | - |   |   | $ | 517,374 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit (loss)     |   | $                            | 176,678 |   |   | $ | 98,184 |   |   | $ | 51,818 |   |   | $ | 4,110 |   |   | $ | (19,758 | ) |   | $ | 311,032 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses      |   | $                            | 63,779  |   |   | $ | 34,272 |   |   | $ | 13,426 |   |   | $ | 20,127 |   |   | $ | 46,594 |   |   | $ | 278,198 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss) |   | $                            | 112,899 |   |   | $ | 63,912 |   |   | $ | 38,392 |   |   | $ | (16,017 | ) |   | $ | (166,352 | ) |   | $ | 32,834 |   |

|                    |   | Year ended December 31, 2008 |    |
|-------------------------|--------|------------------------------|---------|
|                    |   | Americas                     |    |   | EMEA*) |   |   | APAC**) |   |   | Actimize |   |   | Not allocated |   |   | Total |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                |   | $                            | 311,884 |   |   | $ | 170,097 |   |   | $ | 84,029 |   |   | $ | 58,152 |   |   | $ | - |   |   | $ | 624,162 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit (loss)     |   | $                            | 205,824 |   |   | $ | 111,496 |   |   | $ | 62,085 |   |   | $ | 28,946 |   |   | $ | (22,935 | ) |   | $ | 385,416 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses      |   | $                            | 71,936  |   |   | $ | 34,366 |   |   | $ | 15,024 |   |   | $ | 50,456 |   |   | $ | 176,283 |   |   | $ | 348,065 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss) |   | $                            | 133,888 |   |   | $ | 77,130 |   |   | $ | 47,061 |   |   | $ | (21,510 | ) |   | $ | (199,218 | ) |   | $ | 37,351 |   |

|                    |   | Year ended December 31, 2009 |    |
|-------------------------|--------|------------------------------|---------|
|                    |   | Americas                     |    |   | EMEA*) |   |   | APAC**) |   |   | Actimize |   |   | Not allocated |   |   | Total |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                |   | $                            | 324,233 |   |   | $ | 123,597 |   |   | $ | 63,609 |   |   | $ | 71,676 |   |   | $ | - |   |   | $ | 583,115 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit (loss)     |   | $                            | 216,324 |   |   | $ | 74,730 |   |   | $ | 41,629 |   |   | $ | 34,808 |   |   | $ | (21,581 | ) |   | $ | 345,910 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses      |   | $                            | 61,428  |   |   | $ | 18,498 |   |   | $ | 15,845 |   |   | $ | 50,541 |   |   | $ | 161,399 |   |   | $ | 307,711 |   |
|                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss) |   | $                            | 154,896 |   |   | $ | 56,232 |   |   | $ | 25,784 |   |   | $ | (15,733 | ) |   | $ | (182,980 | ) |   | $ | 38,199 |   |

|   | *) | Includes Europe, the Middle East (including Israel) and Africa. |
|--------|----|-----------------------------------------------------------------|

|   | **) | Includes Asia Pacific. |
|--------|-----|------------------------|

----

----

| NOTE 15:- | REPORTABLE SEGMENTS, PRODUCT LINES AND MAJOR CUSTOMER DATA (Cont.) |
|-----------|--------------------------------------------------------------------|

|   | The following presents long-lived assets of December 31, 2008 and December 31, 2009: |
|--------|--------------------------------------------------------------------------------------|

|     |   | December 31, |    |
|----------|--------|--------------|---------|
|     |   | 2008         |    |   | 2009 |   |
|     |   |         |    |   |   |   |
| Americas |   | $            | 241,739 |   |   | $ | 229,449 |   |
| EMEA     |   |         | 88,167  |   |   |   | 95,393 |   |
| APAC     |   |         | 3,608   |   |   |   | 4,048 |   |
| Actimize |   |         | 280,786 |   |   |   | 344,324 |   |
|     |   |         |    |   |   |   |   |   |
|     |   | $            | 614,300 |   |   | $ | 673,214 |   |

|   | The Company is organized in three geographical regions (Americas, EMEA and APAC) and an additional separate business unit - Actimize. Each of the geographical regions and Actimize are overseen by their respective segment managers, who have sales and revenue responsibilities for their geographic areas. The segment managers report directly to the Chief Operating Decision Maker ("CODM") with respect to their operating results. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's segments are engaged in business activities for which they earn revenues and incur expenses, their results are reviewed by the CODM and discrete financial information is available. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The geographical regions sell various products, which are segregated into two product lines: Enterprise Interaction Solutions and Public Safety and Security sector.  The third product line of the Company is the Operational Risk Management Solutions, which is sold by Actimize. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In 2010, the Company has started a process of changing its internal organization from a geographical area organization to operating-based segments. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Product lines: |
|--------|----|----------------|

|                               |   | Year ended December 31, |    |
|------------------------------------|--------|-------------------------|---------|
|                               |   | 2007                    |    |   | 2008 |   |   | 2009 |   |
|                               |   |                    |    |   |   |   |   |   |   |
| Enterprise Interaction Solutions   |   | $                       | 382,893 |   |   | $ | 417,454 |   |   | $ | 363,576 |   |
| Public Safety And Security Sector  |   |                    | 122,923 |   |   |   | 148,556 |   |   |   | 147,863 |   |
| Risk and financial crime Solutions |   |                    | 11,558  |   |   |   | 58,152 |   |   |   | 71,676 |   |
|                               |   |                    |    |   |   |   |   |   |   |   |   |   |
|                               |   | $                       | 517,374 |   |   | $ | 624,162 |   |   | $ | 583,115 |   |

|   | c. | Major customer data as a percentage of total revenues: |
|--------|----|--------------------------------------------------------|

|       |   | Year ended December 31, |   |
|------------|--------|-------------------------|--------|
|       |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|       |   |                    |   |   |   |   |   |   |   |
| Customer A |   |                    | 13     | % |   |   | 13 | % |   |   | * |   |

|   | * Less than 10% |
|--------|-----------------|

----

----

| NOTE 16:- | SELECTED STATEMENTS OF INCOME DATA |
|-----------|------------------------------------|

|   | a. | Research and development costs, net: |
|--------|----|--------------------------------------|

|                                                |   | Year ended December 31, |   |
|-----------------------------------------------------|--------|-------------------------|--------|
|                                                |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                                |   |                    |   |   |   |   |   |   |   |
| Total costs                                         |   | $                       | 63,271 |   |   | $ | 83,296 |   |   | $ | 82,463 |   |
| Less - grants and participations                    |   |                    | (2,677 | ) |   |   | (3,573 | ) |   |   | (3,766 | ) |
| Less - capitalization of software development costs |   |                    | (962   | ) |   |   | (1,278 | ) |   |   | (1,315 | ) |
|                                                |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                |   | $                       | 59,632 |   |   | $ | 78,445 |   |   | $ | 77,382 |   |

|   | b. | Financial income and other, net: |
|--------|----|----------------------------------|

|                                                                             |   | Year ended December 31, |   |
|----------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                             |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
| Financial income:                                                                |   |                    |   |   |   |   |   |   |   |
| Interest and amortization/accretion of premium/discount on marketable securities |   | $                       | 10,875 |   |   | $ | 7,739 |   |   | $ | 9,076 |   |
| Realized gain on marketable securities                                           |   |                    | 5      |   |   |   | 3,054 |   |   |   | 984 |   |
| Interest                                                                         |   |                    | 5,499  |   |   |   | 4,809 |   |   |   | 1,962 |   |
| Foreign currency translation                                                     |   |                    | 1,581  |   |   |   | 6,088 |   |   |   | 505 |   |
|                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                    | 17,960 |   |   |   | 21,690 |   |   |   | 12,527 |   |
| Financial expenses:                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |
| Realized loss on marketable securities                                           |   |                    | (262   | ) |   |   | (4,107 | ) |   |   | (1,062 | ) |
| Interest                                                                         |   |                    | (668   | ) |   |   | (613 | ) |   |   | (705 | ) |
| Foreign currency translation                                                     |   |                    | (1,548 | ) |   |   | (4,568 | ) |   |   | (1,894 | ) |
| Other                                                                            |   |                    | (658   | ) |   |   | (1,113 | ) |   |   | (1,154 | ) |
|                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                    | (3,136 | ) |   |   | (10,401 | ) |   |   | (4,815 | ) |
|                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Other expenses, net                                                              |   |                    | (24    | ) |   |   | (53 | ) |   |   | (115 | ) |
|                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   | $                       | 14,800 |   |   | $ | 11,236 |   |   | $ | 7,597 |   |

|   | c. | Net earnings per share: |
|--------|----|-------------------------|

|   | The following table sets forth the computation of basic and diluted net earnings per share: |
|--------|---------------------------------------------------------------------------------------------|

|   | 1. | Numerator: |
|--------|----|------------|

|                                          |   | Year ended December 31, |   |
|-----------------------------------------------|--------|-------------------------|--------|
|                                          |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                          |   |                    |   |   |   |   |   |   |   |
| Net income available to Ordinary shareholders |   | $                       | 37,380 |   |   | $ | 39,107 |   |   | $ | 42,756 |   |

----

----

| NOTE 16:- | SELECTED STATEMENTS OF INCOME DATA (Cont.) |
|-----------|--------------------------------------------|

|   | 2. | Denominator (in thousands): |
|--------|----|-----------------------------|

|                                                                              |   | Year ended December 31, |   |
|-----------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                              |   | 2007                    |   |   | 2008 |   |   | 2009 |   |
|                                                                              |   |                    |   |   |   |   |   |   |   |
| Denominator for basic net earnings per share -                                    |   |                    |   |   |   |   |   |   |   |
| Weighted average number of shares                                                 |   |                    | 54,060 |   |   |   | 60,429 |   |   |   | 61,395 |   |
| Effect of dilutive securities:                                                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Add - Employee stock options and RSU                                              |   |                    | 1,984  |   |   |   | 1,038 |   |   |   | 1,095 |   |
|                                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |
| Denominator for diluted net earnings per share - adjusted weighted average shares |   |                    | 56,044 |   |   |   | 61,467 |   |   |   | 62,490 |   |

| NOTE 17:- | SUBSEQUENT EVENTS |
|-----------|-------------------|

|   | In January 2010, the Company acquired certain assets and shares from Orsus, for approximately $ 2,000 subject to certain adjustments. Orsus' situator is a Situation Management software platform that enables situation planning, response and analysis for the security, safety and emergency markets. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NICE-SYSTEMS LTD. |                                  |
|--------|-------------------|---------------------------------------|
|   |              |                                  |   |
|   | By:               | /s/ Zeev Bregman                 |   |
|   |              | Zeev Bregman                          |   |
|   |              | President and Chief Executive Officer |   |
|   |              |                                  |   |

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