Document:

Exhibit
10.1

Nightingale & Associates, LLC

Soundview Plaza

1266 East Main Street

Stamford, Connecticut  06902

 

Tel:   203.359.3855

Fax: 203.359.4551

Email: info@nightingale-associates.org

Principals:

Michael R. D’Appolonia

Howard S. Hoffmann

James D. Neidhart

Senior Principals

Pierre Benoit

January 8, 2007

Mr. Stephen H. Rusckowski, Chairman of the Board of Directors

Mr. John Underwood, Chairman of the Compensation Committee

Mr. Frank Lavelle, President

MedQuist Inc.

1000 Bishops Gate Blvd., Suite 300

Mt. Laurel, NJ  08054-4632

Gentlemen:

In response to
various discussions, Nightingale & Associates, LLC (“Nightingale”) has been
asked to submit this proposed Amendment to our Engagement Letter with MedQuist
Inc. (“MedQuist” or the “Company”) dated July 29, 2004 as amended on December
16, 2004 and on September 25, 2006 (collectively, the “Amended Engagement
Letter”).  This Amendment (i) provides
revisions to the cost structure and term associated with the continued
retention of Mr. Howard Hoffmann as the Company’s Interim Chief Executive
Officer.  All other terms and conditions
for the retention of Nightingale, as detailed in the Amended Engagement Letter,
including but not limited to the Release and Indemnification agreement, will
remain in force and effect.  It is our
understanding that Howard Hoffmann, on behalf of Nightingale, will continue to be
engaged by MedQuist as the Company’s Interim Chief Executive Officer and will continue
to report to the Company’s Board of Directors.

I.              SCOPE OF WORK:

Effective as of January 1, 2007 Nightingale will extend the term of Howard
Hoffmann’s role as MedQuist’s Interim Chief Executive Officer until June 30,
2007.  Following termination of Mr.
Hoffmann’s role as Interim Chief Executive Officer, Mr. Hoffmann will endeavor
to make himself available for ongoing consultancy work on an as needed basis, subject
to negotiation of a mutually agreeable Scope of Work.  It should be noted that Mr. Hoffmann expects to
be working on other client engagements upon his departure as the full time
Interim Chief Executive Officer of MedQuist, and thus his availability for work
beyond June 30, 2007 cannot be guaranteed.

 

   
 

 
  

II.            FEE STRUCTURE:

Fixed Monthly Fee:

Effective as of January 1, 2007, Nightingale’s fees
for Mr. Hoffmann’s role as Interim Chief Executive Officer will be a fixed rate
of $120,000 per month payable in arrears. 
If Mr. Hoffmann’s role is terminated during the course of a month,
Nightingale’s fees for the final month will be prorated based on the actual
number of calendar days elapsed during the month up to and including Mr.
Hoffmann’s final day of work.  Mr.
Hoffmann’s fees for consultancy services following his departure as the Interim
Chief Executive Officer of MedQuist will be billed at an hourly rate of
$525/hour.

2007 Performance Bonus:

Nightingale may be entitled to an additional performance
related bonus payment of up to $480,000, which will be paid no later than July 16,
2007 (the “2007 Performance Bonus”) in connection with Mr. Hoffmann’s service
in 2007 as Interim Chief Executive Officer. 
The amount, if any, of the 2007 Performance Bonus that Nightingale is to
receive will be based on the achievement of certain operational objectives that
have been established by the Board of Directors of MedQuist and Nightingale,
which operational objectives involve confidential strategic, commercial and
financial information, the disclosure of which would result in competitive harm
to the Company.

2006 Discretionary Bonus:

Nightingale remains eligible for the 2006
Discretionary Bonus as described in the September 12, 2006 amendment to our
Engagement Letter (the “September 2006 Amendment”).  Nightingale agrees to extend the date by
which the Committee will inform Nightingale of its determination of the amount,
if any, of the 2006 Discretionary Bonus that is to be paid until fourteen days
following completion of the filing of the Company’s periodic filings covering
the years 2003, 2004 and 2005 and its forms 10-Q for the first three quarters
of 2006 with the Securities and Exchange Commission.  All other terms associated with the 2006
Discretionary Bonus are as described in the September 2006 Amendment.

Availability Guaranty Fee:

Given that this amendment extends Mr. Hoffmann’s role
as MedQuist’s full time Interim Chief Executive Officer, the Availability
Guaranty Fee requirement described in the September 2006 Amendment is no longer
in force and effect.

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Additional Nightingale Personnel:

Nightingale will continue to make available the
services of Mr. Michael C. Yeager and Ms. Jeanine Cobonpue to perform selected
services in connection with the Company’s billing matter and operations related
activities.  Mr. Yeager’s professional
time fee services have been and will continue to be invoiced to MedQuist at his
prevailing hourly rate of $350/hour.  Ms.
Cobonpue’s professional time fee services have been and will continue to be
invoiced to MedQuist at her prevailing hourly rate of $175/hour.  Should it become necessary to utilize the services
of additional Nightingale personnel on the project, it is agreed that
Nightingale will invoice professional time fees for such personnel at their
prevailing hourly rates.  Nightingale
agrees that it will obtain the advance approval of the Board of Directors,
which shall be conveyed by the Board of Directors to Frank Lavelle, before
adding additional personnel to the project team.

In addition to professional time fees, out-of-pocket
expenses are billed at cost, and generally range from 10% to 20% of professional
time fees, depending on the amount of travel involved.  Out-of-pocket expenses consist primarily of
transportation, meals, lodging, telephone, specifically assignable secretarial
and office assistance, and report production.

III.                             ADVANCE DEPOSIT

Nightingale requires an Advance Deposit for all
assignments of the type described above. 
Given this situation, Nightingale will not require an increase of its
existing Advance Deposit of $75,000 that has been paid by the Company.  At the completion of the project and at the
direction of the Company, Nightingale will either apply the Advance Deposit to
any outstanding invoices or, if there are no unpaid invoices owing to
Nightingale, promptly return the Deposit to the Company.

v  v  v
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If this Amendment
conforms to your understanding of the terms and conditions of our retention,
please have the appropriate party signify agreement by signing and returning
the enclosed extra copy of this Amendment.

We look forward to continue working with you and the
Company.

	
  

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  /s/ Howard S. Hoffmann

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Howard S.
  Hoffmann,

  
	
   

  	
  in the capacity
  as Principal and

  
	
   

  	
  Managing Partner
  of Nightingale &

  
	
   

  	
  Associates, LLC

  

 

 

READ,
UNDERSTOOD AND AGREED TO BY:

MedQuist
Inc.

 

	
  By: 

  	
  /s/ Stephen H.
  Rusckowski

  	
   

  	
   

  
	
   

  	
  Stephen H. Rusckowski

  
	
   

  	
  Chairman of the Board
  of Directors of MedQuist Inc

  
	
   

  	
   

  
	
   

  	
  Date: January 8, 2007

  
	
   

  
	
   

  
	
  By: 

  	
  /s/ John Underwood

  	
   

  	
   

  
	
   

  	
  John Underwood

  
	
   

  	
  Chairman of the
  Compensation Committee of the Board of Directors of MedQuist Inc.

  
	
   

  
	
   

  	
  Date: January 8, 2007

  
	
   

  
	
   

  
	
  By: 

  	
  /s/ Frank W. Lavelle

  	
   

  	
   

  
	
   

  	
  Frank W. Lavelle,
  President

  
	
   

  	
   

  
	
   

  	
  Date: January 8, 2007

  
									

 

 

 4Exhibit 10.1

WEBSENSE, INC.

2007
STOCK INCENTIVE ASSUMPTION PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. BACKGROUND AND PURPOSE OF THE PLAN

A.            This
2007 Stock Incentive Assumption Plan is established in connection with the
acquisition by the Corporation of PortAuthority Technologies, Inc. and is
intended to comply with Rule 4350(i)(1)(A)(iii) of the Nasdaq Marketplace
Rules.

B.            This
2007 Stock Incentive Assumption Plan is intended to promote the interests of
Websense, Inc., a Delaware corporation, and any Parent or Subsidiary by
providing Eligible Optionees (as defined below) with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in
the Corporation as an incentive for them to remain in the service of the
Corporation or any Parent or Subsidiary.

C.            Capitalized
terms shall have the meanings assigned to such terms herein and in the attached
Appendix A.

II. STRUCTURE OF THE PLAN

The Plan shall consist of
the Discretionary Option Grant Program under which Eligible Optionees may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock.

III. ADMINISTRATION OF THE PLAN

A.            The
Primary Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.  Administration of the Discretionary Option
Grant Program with respect to all other Eligible Optionees may, at the Board’s
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer such program with respect to all such
persons.  However, any discretionary
option grants for members of the Primary Committee must be authorized by a
disinterested majority of the Board.

B.            Members
of the Primary Committee or any Secondary Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any time.
The Board may also at any time terminate the functions of any Secondary
Committee and reassume all powers and authority previously delegated to such
committee.

C.            Each
Plan Administrator shall, within the scope of its administrative functions
under the Plan, have full power and authority (subject to the provisions of the
Plan) to establish such rules and regulations as it may deem appropriate for
proper administration of the

 1
 

 

Discretionary Option Grant Program and to make such determinations
under, and issue such interpretations of, the provisions of such program and
any outstanding options thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant Program under its jurisdiction or
any stock option issuance thereunder.

D.            Service
on the Primary Committee or the Secondary Committee shall constitute service as
a Board member, and members of each such committee shall accordingly be
entitled to full indemnification and reimbursement as Board members for their
service on such committee. No member of the Primary Committee or the Secondary
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants under the Plan.

IV.
ELIGIBILITY

A.            The
following persons are eligible to participate in the Discretionary Option Grant
Program (the “Eligible Optionees”)
provided that such persons were not providing Service to the Company or any of
its Subsidiaries prior to the Plan Effective Date:

(i)            Employees,

(ii)           non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and

(iii)          consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).

B.            Each
Plan Administrator shall, within the scope of its administrative jurisdiction
under the Plan, have full authority to determine, with respect to the option
grants under the Discretionary Option Grant Program, which eligible persons are
to receive such grants, the time or times when those grants are to be made, the
number of shares to be covered by each such grant, the time or times when each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain outstanding.

C.            The
Plan Administrator shall have the absolute discretion to grant options in
accordance with the Discretionary Option Grant Program.

V. STOCK SUBJECT TO THE PLAN

A.            The
stock issuable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares repurchased by the Corporation on the
open market.

B.            The
number of shares of Common Stock reserved for issuance under the Plan shall
consist of the unused share reserve and potential reversions to such reserve,
as of the date

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immediately prior to the Plan Effective Date, of the PortAuthority
Plan, subject to adjustment as provided in the PortAuthority Plan.  Accordingly, as the Plan Effective Date, the
share reserve consists of 204,083 shares of Common Stock, of which there are
Existing Options covering 74,871 shares of Common Stock and 129,212 shares of
Common Stock remaining available for option grants.  Shares of Common Stock subject to any
Existing Options shall be available for subsequent issuance under the Plan to
the extent those options expire or terminate for any reason prior to exercise
in full.  Shares of Common Stock subject
to outstanding options shall be available for subsequent issuance under the
Plan to the extent those options expire or terminate for any reason prior to
exercise in full.

C.            No
one person participating in the Plan may receive stock options for more than
1,500,000 shares of Common Stock in the aggregate per calendar year.

D.            If
any change is made to the Common Stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made
by the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one person may be granted stock options under the Plan per calendar
year, and (iii) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

ARTICLE TWO

DISCRETIONARY
OPTION GRANT PROGRAM

I. OPTION TERMS

Each option shall be
evidenced by one or more documents in the form approved by the Plan
Administrator; provided, however, that each such document shall comply with the
terms specified below.

A. EXERCISE PRICE

1.             The
exercise price per share shall be fixed by the Plan Administrator but shall not
be less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date. 
Notwithstanding the foregoing, an option may be granted with an exercise
price lower than one hundred percent (100%) of the Fair Market Value per share
of Common Stock subject to the option if such option is granted pursuant to an
assumption of or substitution for another option in a manner consistent with
the provisions of Section 424(a) of the Code (whether or not such options are
intended to be “incentive stock options” within the meaning of Section 422 of
the Code and the regulations promulgated thereunder).

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2.             The
exercise price shall become immediately due upon exercise of the option and
shall, subject to the documents evidencing the option, be payable in one or more
of the forms specified below:

(i)            cash
or check made payable to the Corporation and denominated in the currency of the
primary economic environment of, at the Corporation’s discretion, either the
Corporation or the Optionee (that is the functional currency of the Corporation
or the currency in which the Optionee is paid),

(ii)           shares of Common Stock valued at Fair Market
Value on the Exercise Date, or

(iii)          to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to complete the
sale.

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

B.            EXERCISE
AND TERM OF OPTIONS. Each option shall be exercisable at such time or times,
during such period and for such number of shares as shall be determined by the
Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.

C.            EFFECT OF TERMINATION OF SERVICE

1.             The
following provisions shall govern the exercise of any options held by the Optionee
at the time of cessation of Service or death:

(i)            Any
option outstanding at the time of the Optionee’s cessation of Service for any
reason shall remain exercisable for such period of time thereafter as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the expiration of the
option term.

(ii)           Any option held by the Optionee at the time
of death and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate or by the
person or persons to whom the option is transferred pursuant to the Optionee’s
will or the laws of

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inheritance or by the Optionee’s designated
beneficiary or beneficiaries of that option.

(iii)          Should the Optionee’s Service be terminated
for Misconduct or should the Optionee otherwise engage in Misconduct while
holding one or more outstanding options under this Article Two, then all those
options shall terminate immediately and cease to be outstanding.

(iv)          During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee’s cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall, immediately upon the
Optionee’s cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested shares.

2.             The
Plan Administrator shall have complete discretion, exercisable either at the
time an option is granted or at any time while the option remains outstanding,
to:

(i)            extend
the period of time for which the option is to remain exercisable following the
Optionee’s cessation of Service from the limited exercise period otherwise in
effect for that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the option
term, and/or

(ii)           permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time
of the Optionee’s cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.

D.            STOCKHOLDER
RIGHTS. The holder of an option shall have no stockholder rights with respect
to the shares subject to the option until such person shall have exercised the
option, paid the exercise price and become a holder of record of the purchased
shares.

E.             REPURCHASE
RIGHTS. The Plan Administrator shall have the discretion to grant options which
are exercisable for unvested shares of Common Stock. Should the Optionee cease
Service while holding such unvested shares, the Corporation shall have the
right to repurchase, at the exercise price paid per share, any or all of those
unvested shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.

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F.             LIMITED
TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, options shall
be exercisable only by the Optionee and shall not be assignable or transferable
other than by will or the laws of inheritance following the Optionee’s death,
except that an option may be assigned in whole or in part during the Optionee’s
lifetime to one or more members of the Optionee’s family or to a trust
established exclusively for one or more such family members or to Optionee’s
former spouse, to the extent such assignment is in connection with the Optionee’s
estate plan or pursuant to a domestic relations order. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. Notwithstanding the
foregoing, the Optionee may also designate one or more persons as the beneficiary
or beneficiaries of his or her outstanding options under this Article Two, and
those options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee’s death
while holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Optionee’s death.

III. CORPORATE TRANSACTION/CHANGE IN
CONTROL

A.            In
the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully vested shares of Common Stock. However,
an outstanding option shall NOT become exercisable on such an accelerated basis
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

B.            All
outstanding repurchase rights shall automatically terminate, and the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent: (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed by the Plan Administrator at
the time the repurchase right is issued.

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C.            Immediately
following the consummation of the Corporate Transaction, all outstanding
options shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).

D.            Each
option which is assumed in connection with a Corporate Transaction shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
to the number and class of securities which would have been issuable to the
Optionee in consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction. Appropriate adjustments to
reflect such Corporate Transaction shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same, (ii) the
maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options under the Plan
per calendar year. To the extent the actual holders of the Corporation’s
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Corporate Transaction, the successor corporation may, in connection
with the assumption of the outstanding options under the Discretionary Option
Grant Program, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.

E.             The
Plan Administrator shall have the discretionary authority to structure one or
more outstanding options under the Discretionary Option Grant Program so that
those options shall, immediately prior to the effective date of such Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to those options and may be exercised for any or all of those shares as
fully vested shares of Common Stock, whether or not those options are to be
assumed in the Corporate Transaction. In addition, the Plan Administrator shall
have the discretionary authority to structure one or more of the Corporation’s
repurchase rights under the Discretionary Option Grant Program so that those
rights shall not be assignable in connection with such Corporate Transaction
and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall thereupon
vest in full.

F.             The
Plan Administrator shall have full power and authority to structure one or more
outstanding options under the Discretionary Option Grant Program so that those
options shall become exercisable for all the shares of Common Stock at the time
subject to those options in the event the Optionee’s Service is subsequently
terminated by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed and do not otherwise accelerate.
In addition, the Plan Administrator may structure one or more of the
Corporation’s repurchase rights so that those rights shall immediately
terminate with respect to any shares held by the Optionee at the time of his or
her Involuntary Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.

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G.            The
Plan Administrator shall have the discretionary authority to structure one or
more outstanding options under the Discretionary Option Grant Program so that
those options shall, immediately prior to the effective date of a Change in
Control, become exercisable for all the shares of Common Stock at the time
subject to those options and may be exercised for any or all of those shares as
fully vested shares of Common Stock. In addition, the Plan Administrator shall
have the discretionary authority to structure one or more of the Corporation’s
repurchase rights under the Discretionary Option Grant Program so that those
rights shall terminate automatically upon the consummation of such Change in
Control, and the shares subject to those terminated rights shall thereupon vest
in full. Alternatively, the Plan Administrator may condition the automatic
acceleration of one or more outstanding options under the Discretionary Option
Grant Program and the termination of one or more of the Corporation’s
outstanding repurchase rights under such program upon the subsequent
termination of the Optionee’s Service by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of such Change in Control.

H.            The
outstanding options shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

IV. CANCELLATION AND REGRANT OF
OPTIONS

Neither the Board nor the
Plan Administrator shall have the authority to: (i) re-price any outstanding
option under the Plan or (ii) cancel and re-grant any outstanding option under
the Plan, unless the stockholders of the Company have approved such an action
within twelve (12) months prior to such an event.

ARTICLE THREE

MISCELLANEOUS

I. TAX WITHHOLDING

The Corporation’s
obligation to deliver shares of Common Stock upon the exercise of options or
the issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.

II.
EFFECTIVE DATE AND TERM OF THE PLAN

A.            The
Plan shall become effective immediately on the Plan Effective Date.  Options may be granted under the
Discretionary Option Grant Program at any time on or after the Plan Effective
Date.

B.            The
Plan shall terminate upon the earliest to occur of (i) November 28, 2014, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued as fully vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. Should the Plan terminate
on November 28, 2014, then all option

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grants outstanding at that time shall continue to have force and effect
in accordance with the provisions of the documents evidencing such grants.

III. AMENDMENT OF THE PLAN

A.            The Board shall have
complete and exclusive power and authority to amend or modify the Plan in any
or all respects. However, no such amendment or modification shall adversely
affect the rights and obligations with respect to stock options at the time
outstanding under the Plan unless the Optionee consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

B.            Options to purchase
shares of Common Stock may be granted under the Discretionary Option Grant
Program that are in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under such program
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees the exercise price paid for
any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.

IV. USE OF PROCEEDS

Any cash proceeds
received by the Corporation from the sale of shares of Common Stock under the
Plan shall be used for general corporate purposes.

V. REGULATORY APPROVALS

A.            The
implementation of the Plan, the granting of any stock option under the Plan and
the issuance of any shares of Common Stock upon the exercise of any granted
option shall be subject to the Corporation’s procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan, the
stock options granted under it and the shares of Common Stock issued pursuant
to it.

B.            No
shares of Common Stock or other assets shall be issued or delivered under the
Plan unless and until there shall have been compliance with all applicable
requirements of Federal and state securities laws, including the filing and
effectiveness of the Form S-8 registration statement for the shares of Common
Stock issuable under the Plan, and all applicable listing requirements of any
established stock exchange on which Common Stock is then listed for trading.

 9
 

 

VI. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall
confer upon the Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Corporation (or any Parent or Subsidiary employing or retaining such
person) or of the Optionee, which rights are hereby expressly reserved by each,
to terminate such person’s Service at any time for any reason, with or without
cause.

VII. RULES PARTICULAR TO SPECIFIC COUNTRIES OR
JURISDICTIONS

Notwithstanding
anything herein to the contrary, the terms and conditions of the Plan may be
adjusted with respect to a particular country or jurisdictions by means of an
addendum to the Plan in the form of an appendix (the “Jurisdiction
Appendix”), and
to the extent that the terms and conditions set forth in the Jurisdiction
Appendix conflict with any provisions of the Plan, the provisions of the
Jurisdiction Appendix shall govern. Terms and conditions set forth in the
Jurisdiction Appendix shall apply only to options issued to Optionees under the
jurisdiction of the specific country or other jurisdiction that is subject of
the Jurisdiction Appendix and shall not apply to options issued to any other
Optionee. The adoption of any such Jurisdiction Appendix shall be subject to the approval of the
Board.

 10

 

APPENDIX A

The following
definitions shall be in effect under the Plan:

A.            BOARD shall mean the Corporation’s Board of
Directors.

B.            CHANGE IN CONTROL
shall mean a change in ownership or control of the Corporation effected through
either of the following transactions:

(i)            the acquisition,
directly or indirectly by any person or related group of persons (other than
the Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation’s outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation’s stockholders, or

(ii)           a change in the
composition of the Board over a period of thirty-six (36) consecutive months or
less such that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.

C.            CODE shall mean the
Internal Revenue Code of 1986, as amended.

D.            COMMON STOCK shall
mean the Corporation’s common stock.

E.             CORPORATE TRANSACTION
shall mean either of the following stockholder-approved transactions to which
the Corporation is a party:

(i)            a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation’s outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction, or

(ii)           the sale, transfer or
other disposition of all or substantially all of the Corporation’s assets in complete
liquidation or dissolution of the Corporation.

F.             CORPORATION shall
mean Websense, Inc., a Delaware corporation, and any corporate successor to all
or substantially all of the assets or voting stock of Websense, Inc. which
shall by appropriate action adopt the Plan.

 A-1
 

 

G.            DISCRETIONARY OPTION
GRANT PROGRAM shall mean the discretionary option grant program in effect under
Article Two of the Plan.

H.            EMPLOYEE shall mean an
individual who is in the employ of the Corporation (or any Parent or
Subsidiary), subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.

I.              EXERCISE DATE shall
mean the date on which the Corporation shall have received written notice of
the option exercise.

J.             EXISTING OPTION shall
mean an option outstanding immediately prior to the Plan Effective Date under
the PortAuthority Plan that was replaced by a stock option to purchase Common
Stock in substitution therefore at the Plan Effective Date.

K.            FAIR MARKET VALUE per
share of Common Stock on any relevant date shall be determined in accordance
with the following provisions:

(i)            If the Common Stock is
listed on any established stock exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the date in question, as
such price is quoted on such exchange (or the exchange with the greatest volume
of trading in the Common Stock) and published in The Wall Street Journal. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

(ii)           In the absence of any
such market for the Common Stock, the Fair Market Value shall be determined by
the Board in good faith.

L.             INVOLUNTARY
TERMINATION shall mean the termination of the Service of any individual which
occurs by reason of:

(i)            such individual’s
involuntary dismissal or discharge by the Corporation for reasons other than
Misconduct, or

(ii)           such individual’s
voluntary resignation following (A) a change in his or her position with the
Corporation which materially reduces his or her duties and responsibilities or
the level of management to which he or she reports, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of such individual’s place
of employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the individual’s
consent.

M.           MISCONDUCT shall mean
the commission of any act of fraud, embezzlement or dishonesty by the Optionee
or Participant, any unauthorized use or disclosure by such

 A-2
 

 

person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

N.            1934 ACT shall mean
the Securities Exchange Act of 1934, as amended.

O.            NON-STATUTORY OPTION
shall mean an option not intended to satisfy the requirements of Code Section
422.

P.             OPTIONEE shall mean
any person to whom an option is granted under the Discretionary Option Grant
Program.

Q.            PARENT shall mean any
corporation (other than the Corporation) in an unbroken chain of corporations
ending with the Corporation, provided each corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

R.            PERMANENT DISABILITY
OR PERMANENTLY DISABLED shall mean the inability of the Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.

S.             PLAN shall mean the
Corporation’s 2007 Stock Incentive Assumption Plan, as set forth in this
document.

T.            PLAN ADMINISTRATOR
shall mean the particular entity, whether the Primary Committee, the Board or
the Secondary Committee, which is authorized to administer the Discretionary
Option Grant Program with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.

U.            PLAN EFFECTIVE DATE
shall mean January 8, 2007.

V.            PORTAUTHORITY PLAN
shall mean the PortAuthority Technologies, Inc. 2004 Global Share Option Plan.

W.           PRIMARY COMMITTEE shall
mean the committee of two (2) or more non-employee Board members appointed by
the Board to administer the Discretionary Option Grant Program with respect to
Section 16 Insiders.

 A-3
 

 

X.            SECONDARY COMMITTEE
shall mean a committee of one or more Board members appointed by the Board to
administer the Discretionary Option Grant Program with respect to eligible
persons other than Section 16 Insiders.

Y.            SECTION 16 INSIDER
shall mean an officer or director of the Corporation subject to the short-swing
profit liabilities of Section 16 of the 1934 Act.

Z.            SERVICE shall mean the
performance of services for the Corporation (or any Parent or Subsidiary) by a
person in the capacity of an Employee, a non-employee member of the board of
directors or a consultant or independent advisor, except to the extent
otherwise specifically provided in the documents evidencing the option grant.

AA.        SUBSIDIARY shall mean any
corporation (other than the Corporation) in an unbroken chain of corporations
beginning with the Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

BB.          WITHHOLDING TAXES shall
mean the Federal, state and local income and employment withholding taxes to
which the holder of Non-Statutory Options or unvested shares of Common Stock
may become subject in connection with the exercise of those options or the
vesting of those shares.

 A-4

 

WEBSENSE, INC.

APPENDIX A – ISRAEL 

TO THE 2007 STOCK  INCENTIVE ASSUMPTION PLAN 

1.             GENERAL

1.1           This appendix (the “Appendix”) shall apply only to Optionees who
are residents of the state of Israel upon the date of grant of the Option or
those who are deemed to be residents of the state of Israel for tax purposes
upon the date of grant of the Option (collectively, “Israeli Optionees”). The provisions specified hereunder shall
form an integral part of the Websense Inc. 2007 Stock Incentive Assumption Plan (hereinafter the “Plan”).

1.2           This Appendix is to be
read as a continuation of the Plan and modifies Options granted to Israeli Optionees
only to the extent necessary to comply with the requirements set by the Israeli
law in general, and in particular with the provisions of the Ordinance. For the
avoidance of doubt, this Appendix does not add to or modify the Plan in respect
of any other Optionees or Options.

1.3           The Plan and this
Appendix are complementary to each other and shall be deemed as one. In any case
of contradiction, whether express or implied, between the provisions of this
Appendix and the Plan, the provisions set out in the Appendix shall prevail.

1.4           Any capitalized term used
herein but not specifically defined in this Appendix shall be construed
according to the interpretation given to it in the Plan.

2.             DEFINITIONS

2.1           “3(i) Option” means an Option granted to an
Unapproved Israeli Optionee pursuant to Section 3(i) of the Ordinance.

2.2           “102 Option” means any Option
granted to an Approved Israeli Optionee pursuant to Section 102 of the
Ordinance.

2.3           “Approved Israeli Optionee” means
an Israeli Optionee who is an Employee, Director or office holder of the
Company or a Subsidiary, but excluding any Controlling Shareholder.

 

2.4           “Capital Gain Option”
or “CGO” means a Trustee 102 Option elected and designated by the Company
to qualify for capital gain tax treatment in accordance with the provisions of
Section 102(b)(2) of the Ordinance.

2.5           “Company” means Websense,
Inc., a Delaware corporation.

2.6           “Controlling Shareholder” shall
have the meaning ascribed to it in Section 32(9) of the Ordinance.

2.7           “ITA” means the Israeli Tax
Authorities.

2.8           “Israeli Option Agreement”             means an Option Agreement
between the Company and an Israeli Optionee that sets out the terms and
conditions of an Option granted to an Israeli Optionee.

2.9           “Israeli Subsidiary” means a “Subsidiary”,
as defined in Section 2 of the Plan, incorporated and registered in Israel.

2.10         “Non-Trustee 102 Option” means an Option
granted pursuant to Section 102(c) of the Ordinance and not held in trust by a
Trustee.

2.11         “Ordinary Income Option” or “OIO”
means a Trustee 102 Option elected and designated by the Company to qualify for
ordinary income tax treatment in accordance with the provisions of Section
102(b)(1) of the Ordinance.

2.12         “Ordinance” means the Israeli Income Tax
Ordinance [New Version] 1961 as now in effect or as hereafter amended.

2.13         “Section 102” means Section 102 of the
Ordinance and any regulations, rules, orders or procedures promulgated
thereunder as now in effect or as hereafter amended.

2.14         “Tax” means any applicable tax and
other compulsory payments such as social security and health tax contributions
under any Applicable Law.

 2.15        “Trustee” means any person or entity
appointed by the Company to serve as a trustee and approved by the ITA, all in
accordance with the provisions of Section 102(a) of the Ordinance.

2.16         “Trustee 102 Option” means an Option
granted pursuant to Section 102(b) of the Ordinance and held in trust by a
Trustee for the benefit of an Approved Israeli Optionee.

2.17         “Unapproved Israeli Optionee” means an Israeli Optionee who is
a Consultant or an Israeli Optionee who is a Controlling Shareholder.

 

3.             ISSUANCE OF OPTIONS

3.1           The
persons eligible for participation in the Plan as Israeli Optionees shall
include Approved Israeli Optionees and Unapproved Israeli Optionees; provided,
however, that (i) Approved Israeli Optionees may only be granted 102 Options;
and (ii) Unapproved Israeli Optionees may only be granted 3(i) Options.

3.2           The Company may designate Options granted to Approved
Israeli Optionees pursuant to Section
102 as Trustee 102 Options or Non-Trustee 102 Options.

3.3           The
grant of Trustee 102 Options
shall be made under this Appendix and shall be conditioned upon the approval of
the Plan and this Appendix by the ITA.

3.4           Trustee 102 Options may either be
classified as Capital Gain Options (CGOs)
or Ordinary Income Options (OIOs).

3.5           No
Trustee 102 Option may be granted under this Appendix to any Approved Israeli Optionee,
unless and until the Company has filed with
the ITA its election regarding the type of Trustee 102 Options, whether CGOs or
OIOs, that will be granted under the Plan and this Appendix (the “Election”). Such
Election shall become effective beginning the first date of grant of a Trustee
102 Option under this Appendix and shall remain in effect at least until the
end of the year following the year during which the Company first granted
Trustee 102 Options. The Election shall obligate the Company to grant only the type of Trustee 102 Option it has
elected, and shall apply to all Israeli Optionees who are granted Trustee 102 Options during the period indicated herein,
all in accordance with the provisions of Section 102(g) of the Ordinance. For
the avoidance of doubt, such Election shall not prevent the Company from
granting Non-Trustee 102 Options simultaneously.

3.6           All
Trustee 102 Options must be held in trust by, or, subject to the approval of
the ITA, under the control or supervision of, a Trustee, as described in
Section 4 below.

3.7           For the
avoidance of doubt, the designation of Non-Trustee 102 Options and Trustee 102 Options
shall be subject to the terms and conditions set forth in Section 102.

4.             TRUSTEE

4.1           Trustee
102 Options which shall be granted under this Appendix and/or any share of
Common Stock allocated or issued upon exercise or vesting of a Trustee 102 Option
and/or other shares of Common Stock received subsequently following any
realization of rights, including without limitation bonus shares, shall be
allocated or issued to the Trustee or controlled by the Trustee for the benefit
of the Approved Israeli Optionees, in accordance with the provisions of Section
102. In the event that the requirements for Trustee 102 Options are not met, the
Trustee 102 Options may be regarded as Non-Trustee 102 Options, all in
accordance with the provisions of Section 102.

 

4.2           With
respect to any Trustee 102 Option, subject to the provisions of Section 102, an
Approved Israeli Optionee shall not sell or release from trust any share of
Common Stock received upon the exercise or vesting of a Trustee 102 Option
and/or any share of Common Stock received subsequently following any
realization of rights, including without limitation, bonus shares, until the
lapse of the period of time required under Section 102 or any shorter period of
time determined by the ITA (the “Holding
Period”). Notwithstanding the above, if any such sale or release
occurs during the Holding Period, the sanctions under Section 102 shall apply
to, and shall be borne by, such Approved Israeli Optionee.

4.3           Notwithstanding
anything to the contrary, the Trustee shall not release or sell any shares of Common
Stock allocated or issued upon exercise or vesting of a Trustee 102 Option
unless the Company, its Israeli Subsidiary and the Trustee are satisfied that
the full amounts of Tax due have been paid or will be paid.

4.4           Upon
receipt of any Trustee 102 Option, the Approved Israeli Optionee will consent
to the grant of the Option under Section 102 and undertake to comply with the
terms of Section 102 and the trust arrangement between the Company and the
Trustee.

4.5           For
the avoidance of doubt it is clarified that any restricted shares or performance
shares granted to an Approved Israeli Optionee shall be issued in the name of
the Trustee for the benefit of the Israeli Optionee.

5.             OPTIONS

The
terms and conditions upon which the Options shall be issued and exercised or
vest, as applicable, shall be as specified in the Israeli Option Agreement to
be executed pursuant to the Plan and to this Appendix. Each Israeli Option
Agreement shall state, inter alia, the number of Shares of Optioned Stock to
which the Option relates, the type of Option granted thereunder (whether a CGO,
OIO, Non-Trustee 102 Option or a 3(i) Option), and any applicable vesting
provisions and exercise price that may be payable.

 

6.             EXERCISE AND VESTING OF OPTIONS

Vesting and exercise of Options
granted to Israeli Optionees shall be subject to the terms and conditions and,
with respect to exercise, the method, as may be determined by the Company and,
when applicable, by the Trustee, in accordance with the requirements of Section
102.

7.             ASSIGNABILITY, DESIGNATION AND
SALE OF OPTIONS

7.1.          Notwithstanding
any other provision of the Plan, no 102 Option or any right with respect
thereto, or purchasable hereunder, whether fully paid or not, shall be
assignable, transferable or given as collateral, or any right with respect to any
102 Option given to any third party whatsoever, and during the lifetime of the Approved
Israeli Optionee, each and all of such Approved Israeli Optionee’s rights with
respect to an Option shall belong only to the Approved Israeli Optionee. Any
such action made directly or indirectly, for an immediate or future validation,
shall be void.

7.2           As
long as Optioned Stock issued or purchased hereunder are held by the Trustee on
behalf of the Approved Israeli Optionee, all rights of the Approved Israeli Optionee
over the shares of Common Stock cannot be transferred, assigned, pledged or
mortgaged, other than by will or laws of descent and distribution.

8.             INTEGRATION OF SECTION 102 AND
TAX ASSESSING OFFICER’S APPROVAL

8.1.          With regard to Trustee
102 Options, the provisions of the Plan and/or the Appendix and/or the Israeli Option
Agreement shall be subject to the provisions of Section 102 and any approval
issued by the ITA, and the said provisions shall be deemed an integral part of
the Plan, the Appendix, and the Israeli Option Agreement.

8.2.          Any provision of Section
102 and/or said approval issued by the ITA which must be complied with in order
to receive and/or to maintain any tax benefit pursuant to Section 102, which is
not expressly specified in the Plan, the Appendix or the Israeli Option
Agreement, shall be considered binding upon the Company, the Israeli Subsidiary,
and the Approved Israeli Optionees.

9.             DIVIDEND

Subject to the provisions of the Plan, with respect to
all shares of Common Stock allocated or issued upon the exercise of Options granted
to the Israeli Optionee and held by the Israeli Optionee or by the Trustee, as
the case may be, the Israeli Optionee shall be entitled to receive dividends,
if any, in accordance with the quantity of such shares of Common Stock, subject
to the provisions of the Company’s Certificate of Incorporation (and all
amendments thereto) and subject to any applicable taxation on distribution of
dividends, and, when applicable, subject to the provisions of Section 102 and
the rules, regulations or orders promulgated thereunder.

 

10.          TAX CONSEQUENCES

10.1         Any tax consequences
arising from the grant, exercise or vesting of any Option, from the payment for
Optioned Stock covered thereby or from any other event or act (of the Company,
and/or its Subsidiaries, and the Trustee or the Israeli Optionee), hereunder,
shall be borne solely by the Israeli Optionee. Without derogating from Section
4(b)(ix) of the Plan the Company and/or its Subsidiaries, and/or the Trustee
shall be entitled to withhold Tax according to the requirements under the
applicable laws, rules, and regulations, including withholding taxes at source.
Furthermore, the Israeli Optionee agrees to indemnify the Company and/or its Subsidiaries
and/or the Trustee and hold them harmless against and from any and all
liability for any such Tax or interest or penalty thereon, including without
limitation, any liability relating to the necessity to withhold, or to have
withheld, any such Tax from any payment made to the Israeli Optionee.

10.2         The Company and/or, when
applicable, the Trustee shall not be required to release any share certificate
to an Israeli Optionee until all required Tax payments have been fully made.

10.3         With respect to
Non-Trustee 102 Options, if the Israeli Optionee ceases to be employed by the
Company or any Subsidiary, or otherwise if so requested by the Company or the Subsidiary,
the Israeli Optionee shall extend to the Company and/or the Subsidiary a
security or guarantee for the payment of Tax due at the time of sale of shares
of Common Stock, in accordance with the provisions of Section 102.

11.          TERM OF PLAN AND APPENDIX

Notwithstanding anything to
the contrary in the Plan and in addition thereto, the Company shall
obtain all approvals for the adoption of this Appendix or for any amendment to this
Appendix as are necessary to comply with (i) any applicable law, including
without limitation U.S. securities laws and the securities laws of any other
jurisdiction applicable to Options granted to Israeli Optionees under this
Appendix, (ii) any national securities exchange on which the shares of Common
Stock are traded, and (iii) any applicable rules and regulations promulgated by
the U.S. Securities and Exchange Commission.

12.          GOVERNING LAW & JURISDICTION

This Appendix shall be governed by and construed and
enforced in accordance with the laws of the State of Israel applicable to
contracts made and to be performed therein, without giving effect to the
principles of conflict of laws.

*     *    
*

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