EXHIBIT 10.1

COMMTOUCH SOFTWARE LTD.

1996 CSI STOCK OPTION PLAN

1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentive to Employees and Consultants of the Company and its Subsidiary and to promote the success of the Company and the Subsidiary's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Shares Purchase Rights may also be granted under the Plan. The Options and Shares Purchase Rights offered pursuant to the Plan are a matter of separate inducement and are not in lieu of salary or other compensation.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan, in its capacity as an administrator of the Plan.

(b) "Board" means the Board of Directors of the Company.

(c) "Code" means the Internal Revenue Code of 1986, as amended.

(d) "Committee" means a Committee appointed by the Board in accordance with Section 4 of the Plan.

(e) "Company" means CommTouch Software Ltd., an Israeli company.

(f) "Consultant" means any person who is not an Employee and who is engaged by the Company or the Subsidiary to render consulting or advisory services and is compensated for such services, and any Director of the Company or the Subsidiary whether compensated for such services or not. If the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include Directors who are not compensated for their services or are paid only a Director's fee.

(g) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company or the Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or the Subsidiary or (ii) transfers between locations of the Company or the Subsidiary or between the Subsidiary and the Company or any successor. A leave of absence shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company or the Subsidiary, as applicable. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including policies of the Company or the Subsidiary, as applicable. If reemployment upon expiration of a leave of absence approved by the Company or the Subsidiary is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall

cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.

(h) "CSI" means CommTouch Software, Inc., a California corporation.

(i) "Director" means a member of either of the boards of directors of the Company or the Subsidiary.

(j) "Employee" means any person, including Officers and Directors, employed by the Company or the Subsidiary. The payment of a Director's fee by the Company or the Subsidiary shall not be sufficient to constitute "employment."

(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(l) "Fair Market Value" means, as of any date, the value of the Ordinary Shares determined as follows:

(i) If the Ordinary Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination and reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Ordinary Shares are quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Ordinary Shares on the last market trading day prior to the day of determination; or

(iii) In the absence of an established market for the Ordinary Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator.

(m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(n) "Nonstatutory Stock Option" means an option not intended to qualify as an Incentive Stock Option.

(o) "Officer" means a person who is an officer of the Company or the Subsidiary within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(p) "Option" means a stock option granted pursuant to the Plan.

(q) "Optioned Stock" means the Ordinary Shares subject to an Option or a Shares Purchase Right.

(r) "Optionee" means an Employee or Consultant who receives an Option or Shares Purchase Right.

(s) "Ordinary Shares" means the Ordinary Shares of stock of the Company.

(t) "Plan" means the 1996 CSI Stock Option Plan.

(u) "Restricted Shares" means each of the Ordinary Shares acquired pursuant to a grant of a Shares Purchase Right under Section 11 below.

(v) "Section 16(b)" means Section 16(b) of the Exchange Act.

(w) "Shares Purchase Right" means a right to purchase Ordinary Shares pursuant to Section 11 below.

(x) "Subsidiary" means CommTouch Software, Inc., a California corporation, the Company's wholly-owned U.S. subsidiary.

3. Shares Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the aggregate number of Ordinary Shares that may be subject to option and sold under this Plan is 5,000,000, unless amended by the shareholders of the Company. The Ordinary Shares may be authorized but unused, or reacquired Ordinary Shares.

If an Option or Shares Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange pursuant to Section 4(c)(viii) or otherwise, the unpurchased Ordinary Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Ordinary Shares that have actually been issued under the Plan, upon exercise of either an Option or Shares Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan.

4. Administration of the Plan.

(a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board.

(b) Plan Procedure After the Date, if any, upon which the Company becomes Subject to the Exchange Act.

(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the plan may be administered by different bodies with respect to Directors, Officers and Employees who are neither Directors nor Officers.

(ii) Administration With Respect to Directors and Officers. With respect to grants of Options and Shares Purchase Rights to Employees who are also Officers or Directors, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with applicable Israeli securities laws, the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to

administer the Plan, which Committee shall be constituted to comply with the applicable laws of Israel, rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which
Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by applicable laws of Israel, the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which
Section 16(b) exempt discretionary grants and awards of equity securities are to be made.

(iii) Administration With Respect to Other Employees and Consultants. With respect to grants of Options and Shares Purchase Rights to Employees or Consultants who are neither Directors nor Officers, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of the laws and regulations of Israel, of California laws and regulations, of the Code, and of any applicable stock exchange (collectively, the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.

(iv) Compliance with Section 162(m). If, at any time, awards made under the Plan shall be subject to Section 162(m) of the Code, the Plan shall be administered by a committee comprised solely of "outside directors" (within the meaning of Prop. Treas. Reg. Section 1.162-27(e)(3)) or such other persons as may be permitted from time to time under Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.

(c) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Ordinary Shares are listed, the Administrator shall have the authority in its discretion:

(i) to determine the Fair Market Value of the Ordinary Shares, in accordance with Section 2(1) of the Plan;

(ii) to select the Consultants and Employees to whom Options and Shares Purchase Rights may from time to time be granted hereunder;

(iii) to determine whether and to what extent Options and Shares Purchase Rights or any combination thereof are granted hereunder;

(iv) to determine the number of Ordinary Shares to be covered by each such award granted hereunder;

(v) to approve forms of agreement for use under the Plan;

(vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Ordinary Shares covered by such Option has declined since the date the Option was granted; and

(viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.

(d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Shares Purchase Rights.

5. Eligibility.

(a) Nonstatutory Stock Options and Shares Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Shares Purchase Right may, if otherwise eligible, be granted additional Options or Shares Purchase Rights.

(b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Ordinary Shares with respect to which Incentive Stock Options are exercisable for the first time by any particular Optionee during any calendar year (under all plans of the Company and the Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Ordinary Shares shall be determined as of the time the Option with respect to such Ordinary Shares is granted.

(c) Neither the Plan nor any Option or Shares Purchase Right shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company or the Subsidiary, as applicable, nor shall it interfere in any way with his or her right or the Company or the Subsidiary's right to terminate his or her employment or consulting relationship at any time, with or without cause.

6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.

7. Term of Option. The term of each Option shall be the term stated in the option agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or the Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the option agreement.

8. Option Exercise Price and Consideration.

(a) The per share exercise price for the Ordinary Shares to be issued upon exercise of any Option shall be such price as is determined by the Administrator, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or of the Subsidiary, the per share exercise price shall be no less than 110% of the Fair Market Value per Ordinary Share on the date of grant.

(B) granted to any other Employee, the per share exercise price shall be no less than 100% of the Fair Market Value per Ordinary Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option

(A) granted to a person who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or of the Subsidiary, the per share exercise price shall be no less than 110% of the Fair Market Value per Ordinary Share on the date of the grant.

(B) granted to any other person, the per share exercise price shall be no less than 85% of the Fair Market Value per Ordinary Share on the date of grant.

(b) The consideration to be paid for the Ordinary Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note (to the extent permitted by Applicable Laws) in the form attached hereto as Exhibit A, secured by a pledge of the shares issued pursuant to a share pledge in the form attached hereto as Exhibit B, or (4) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. Optionee shall also deliver a properly executed exercise notice together with such other documentation as the Administrator and a broker, if applicable, shall require to effect an exercise of the Option.

9. Exercise of Option.

(a) Procedure for Exercise: Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted.

An Option may not be exercised for a fraction of an Ordinary Share.

An Option shall be deemed to be exercised when written notice of such exercise in the form attached hereto as Exhibit C has been given to the Company in accordance with terms of the Option by the person entitled to exercise the Option and full payment for the Ordinary Shares with respect to

which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Ordinary Shares, no right to vote, receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 13 hereof.

Exercise of an Option in any manner shall result in a decrease in the number of Ordinary Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Ordinary Shares as to which the Option is exercised.

(b) Termination of Employment or Consulting Relationship. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the option agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(c) Disability of Optionee. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, the Optionee may, but, only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the termination of such Option as set forth in the option agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her "permanent disability" as such term is defined in Section 22(e)(3) of the Code, the Optionee shall be entitled, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the option agreement), to exercise all Options such Employee or Consultant would have been entitled to exercise had such Employee or Consultant remained employed for two (2) years from the date of such termination. If such disability is not a "permanent disability," in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. If the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Ordinary Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. In the event of the death of an Optionee, the Optionee's estate or any person who acquired the right to exercise the Option by bequest or inheritance shall be entitled, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the option agreement), to exercise all Options such Employee or Consultant would have received had such Employee or Consultant remained

employed for two (2) years from the date of such termination. All remaining Ordinary Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Ordinary Shares covered by such Option shall revert to the Plan.

(e) Rule 16b-3. Options granted to a person subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

10. Non-Transferability of Options and Shares Purchase Rights. Options and Shares Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.

11. Restricted Shares.

(a) Awards of Restricted Shares.

The Committee may, in its discretion, permit an Optionee to exercise an Option prior to the time the Option would otherwise be exercisable under Section 9. Without limiting the generality of the foregoing, the Committee may provide that if an Option is exercised prior to satisfaction of the vesting requirements of Section 9, the Shares issued upon such exercise shall remain subject to vesting as described in Section 11(c) and shall be subject to a right, but not an obligation, of repurchase by the Company with respect to all unvested Shares if the Optionee ceases to be an Employee for any reason.

(b) Restrictions.

(i) Restricted Shares may not be sold, assigned, transferred, pledged, encumbered, or otherwise disposed of, either voluntarily or involuntarily, until the release of such Shares from the Company's repurchase option under Section 11(c), other than by will or the laws of descent and distribution.

(ii) Optionees receiving Restricted Shares shall be entitled to dividend and voting rights for the Restricted Shares even though they are not vested, provided that such rights shall terminate immediately as to any Restricted Shares that are repurchased by the Company.

(iii) With respect to each receipt of Restricted Shares by an Optionee, such Optionee shall execute a Restricted Share Purchase Agreement in the form attached hereto as Exhibit D.

(c) Vesting.

If the Optionee ceases to be an Employee for any reason, the Company shall have the right, but not the obligation, to repurchase certain of the Shares at their original Exercise Price. The Company's right to repurchase the Shares at their original Exercise Price shall lapse, unless the stock option agreement provides otherwise, as to one-fourth (1/4) of the Shares at the end

of the first year of continuous employment and as to one forty-eighth (1/48) of the Shares per month of continuous employment over the next thirty-six (36) months. Shares that are subject to repurchase at their original Exercise Price are referred to as "Restricted Shares."

(d) Section 83(b) Election.

Within 30 days after the issuance of Restricted Shares to an Optionee under the Plan, the Optionee shall decide whether or not to file an election pursuant to Section 83(b) of the Code and Treasury Regulation section 1.83-2 (and state law counterparts) with respect to the Restricted Shares. If the Optionee does file such an election, the Optionee shall promptly furnish a copy of such election to the Company.

12. Shares Purchase Rights.

(a) Rights to Purchase. Shares Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Shares Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Ordinary Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator makes the determination to grant the Shares Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator.

(b) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser.

(c) Rights as a Shareholder. Once the Shares Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder of the Company and shall be a shareholder of the Company when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares Purchase Right is exercised, except as provided in Section 13 of the Plan.

13. Adjustments Upon Changes in Capitalization or Merger.

(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Ordinary Shares covered by each outstanding Option or Shares Purchase Right, and the number of Ordinary Shares which have been authorized for issuance under the Plan but as to which no Options or Shares Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Shares Purchase Right, as well as the price for each Ordinary Share covered by each such outstanding Option or Shares Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Ordinary Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Ordinary Shares, or any other increase or decrease as determined by the Administrator. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall

be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Ordinary Shares subject to an Option or Shares Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Shares Purchase Right shall terminate immediately prior to the consummation of such proposed action.

(c) Merger. In the event of a merger of the Company with or into another corporation, each outstanding Option or Shares Purchase Right may be assumed or an equivalent option or right may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, an Option or Shares Purchase Right is not assumed or substituted, the Option or Stock Purchases Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Shares Purchase Right shall be considered assumed if, following the merger, the Option or Shares Purchase Right confers the right to purchase or receive, for each share of Optioned Stock subject to the Option or Shares Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Ordinary Shares for each share held on the effective date of the transaction (and if the holders are offered a choice of consideration, the type of consideration received in the merger is not solely common stock of the successor corporation or its parent). The Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Shares Purchase Right, for each share of Optioned Stock subject to the Option or Shares Purchase Right, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Ordinary Shares in the merger.

(d) Compliance with Incentive Stock Option Provisions. Notwithstanding anything to the contrary herein, each adjustment made to an Incentive Stock Option pursuant to this Section 13 shall comply with the rules of Section 424(a) of the Code, and no adjustment shall be made that would cause any Incentive Stock Option to become a Nonstatutory Stock Option.

14. Time of Granting Options and Shares Purchase Rights. The date of grant of an Option or Shares Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Shares Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Shares Purchase Right is so granted within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.

(b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options or Shares Purchase Rights already granted, and such Options and Shares Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company.

16. Conditions Upon Issuance of Ordinary Shares. Ordinary Shares shall not be issued pursuant to the exercise of an Option or Shares Purchase Right unless the exercise of such Option or Shares Purchase Right and the issuance and delivery of such Ordinary Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the laws of Israel, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Ordinary Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option or Shares Purchase Right, the Company may require the person exercising such Option or Shares Purchase Right to represent and warrant at the time of any such exercise that the Ordinary Shares are being purchased only for investment and without any present intention to sell or distribute such Ordinary Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

17. Reservation of Ordinary Shares. During the term of this Plan, the Company shall at all times reserve and keep available such number of Ordinary Shares as shall be sufficient to satisfy the requirements of the Plan.

The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by Company counsel to be necessary to the lawful issuance and sale of any Ordinary Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Ordinary Shares as to which such requisite authority shall not have been obtained.

18. Agreements. Options and Shares Purchase Rights shall be evidenced by written agreements in such form as the Administrator shall approve from time to time.

19. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.

20. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquires Ordinary Shares pursuant to the Plan, not less frequently than annually during the period such Optionee has one or more Options or Shares Purchase Rights outstanding, and, in the case of an individual who acquires Ordinary Shares pursuant to the Plan, during the period such individual owns such Ordinary Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

Approved by the Board of Directors: January 1, 1996

Approved by the Shareholders: January 1, 1996

Amended by the Board of Directors: April 18, 1999

Amendment approved by the Shareholders: June 8, 1999

EXHIBIT 10.2

COMMTOUCH SOFTWARE LTD.

THE 1999
SECTION 3(i) SHARE OPTION PLAN

1. NAME

This share option plan, as amended from time to time, shall be known as the CommTouch Software Ltd. 1999 Section 3(i) Share Option Plan (the
"OPTION PLAN").

2. PURPOSE OF THE OPTION PLAN

The Option Plan is intended as an incentive to retain in the employ of CommTouch Software Ltd. (the "COMPANY") or a Subsidiary of the Company which now exists or hereafter is organized or acquired by the Company, persons of training, experience, and ability, to attract new directors, employees, consultants and contractors, whose services are considered valuable, to encourage the sense of proprietorship of such persons, and to stimulate the active interest of such persons in the development and financial success of the Company by providing them with opportunities to purchase shares in the Company (the "OPTIONS"), pursuant to this Option Plan approved by the Board of Directors of the Company (the "BOARD").

The term "PARENT" shall mean for the purposes of the Option Agreement and the Option Plan: any company (other than the Company) in an unbroken chain of companies ending with the Company if, at the time of granting an Option, each of the companies (other than the Company), owns stock possessing fifty percent (50%) or more of total combined voting power of all classes of stock in one of the other companies in such chain.

The term "SUBSIDIARY" shall mean for the purposes of the Plan: any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chains.

3. ADMINISTRATION OF THE OPTION PLAN

The Board or a share option committee appointed and maintained by the Board for such purpose (the "COMMITTEE") shall have the power to administer the Option Plan. Notwithstanding the above, the Board shall automatically have a residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason

whatsoever.

The Committee shall consist of such number of members (not less than two
(2) in number) as may be fixed by the Board. The Committee shall select one of its members as its chairman (the "CHAIRMAN"( and shall hold its meetings at such times and places as the Chairman shall determine. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

Any member of such Committee shall be eligible to receive Options under the Option Plan while serving on the Committee, unless otherwise specified herein.

The Committee shall have full power and authority to:

3.1 Designate participants.

3.2 Determine the terms and provisions of respective Option agreements (which need not be identical) including, but not limited to, the number of shares in the Company to be covered by each Option, provisions concerning the time or times when and the extent to which the Options may be exercised and the nature and duration of restrictions as to transferability or restrictions constituting substantial risk of forfeiture.

3.3 Accelerate the right of an Optionee to exercise, in whole or in part, any previously granted Option.

3.4 Interpret the provisions and supervise the administration of the Option Plan;

3.5 Determine the Fair Market Value (as defined below) of the Shares (as defined below).

3.6 Determine any other matter which is necessary or desirable for, or incidental to administration of the Option Plan.

The Committee shall have the authority to grant, in its discretion, to the holder of an outstanding Option, in exchange for the surrender and cancellation of such Option, a new Option having a purchase price equal to, lower than or higher than the purchase price provided in the Option so surrendered and canceled, and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Option Plan.

All decisions and selections made by the Board or the Committee pursuant to the provisions of this Option Plan shall be made by a majority of its members except that no member of the Board or the Committee shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Board or the Committee relating to any Option to be granted to that member. Any decision reduced to writing and signed by a majority of the members who

are authorized to make such decision shall be fully effective as if it had been made by a majority at a meeting duly held.

The interpretation and construction by the Committee of any provision of the Option Plan or of any Option thereunder shall be final and conclusive unless otherwise determined by the Board.

Subject to the Company's decision, each member of the Board or the Committee shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Option Plan unless arising out of such member's own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director or otherwise under the Company's Articles of Association, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.

"FAIR MARKET VALUE" shall mean in the Plan, as of any date, the value of a Share determined as follows:

(i) If the Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market system, or The Nasdaq SmallCap Market of the Nasdaq Stock Market, the Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported), as quoted on such exchange or system for the last market trading day prior to time of determination, as reported in the Wall Street Journal, or such other source as the Administrator deems reliable.

(ii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean between the high bid and low asked prices for the Shares on the last market trading day prior to the day of determination, or;

(iii) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Committee.

4. DESIGNATION OF PARTICIPANTS

The persons eligible for participation in this Option Plan as recipients of Options may include any employees, directors and consultants of the Company, or a Subsidiary of the Company or a company or a Parent or a subsidiary company of such company issuing or assuming the Options in a transaction described in Section 9.1 of this Option Plan (the foregoing collectively, the "GROUP"). The grant of an Option hereunder shall neither entitle the recipient thereof to participate nor disqualify him from participating in any other grant

of Options pursuant to this Option Plan or any other option or stock plan of the Company or any of its affiliates.

Anything in the Option Plan to the contrary notwithstanding, all grants of Options to directors and office holders ("NOSEI MISRA" - as such term is defined in the Companies Ordinance (New Version), 1983 (the "COMPANIES ORDINANCE")) shall be authorized and implemented only in accordance with the provisions of the Companies Ordinance, as in effect from time to time.

5. TRUSTEE

The Options which shall be granted to employees consultants and contractors of the Group or any Shares (as defined below) issued upon exercise of such Options and/or other shares received subsequently following any realization of rights, shall be issued to a Trustee nominated by the Committee) the "TRUSTEE" (and held for the benefit of the Optionees from the date of grant.

Anything to the contrary notwithstanding, the Trustee shall not release any Options and/or any Shares issued upon exercise of Options, prior to the full payment of the Optionee's tax liabilities arising from Options which were granted to him and/or any Shares issued upon exercise of such Options.

Upon receipt of the Option, the Optionee will sign an undertaking to exempt the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the Option Plan, or any Option or Share granted to him thereunder.

6. SHARES RESERVED FOR THE OPTION PLAN; RESTRICTION THEREON

6.1 The Company has reserved 250,000 authorized but unissued Ordinary Shares nominal value NIS 1.00 per share, of the Company (the "SHARES"), for purposes of the Option Plan (subject to adjustment as set forth in paragraph 9 below), the 1996 CommTouch Software, Inc. Stock Option Plan and Israeli Option Agreements previously issued to Israeli employees. Any of such Shares which may remain unissued and which are not subject to outstanding Options at the termination of the Option Plan shall cease to be reserved for the purpose of the Option Plan, but until termination of the Option Plan the Company shall at all times reserve sufficient number of Shares to meet the requirements of the Option Plan. Should any Option for any reason expire or be canceled prior to its exercise or relinquishment in full, the Shares subject to such Option may again be subjected to an Option under the Option Plan.

6.2 An optionee who purchased Shares hereunder upon exercise of Options shall have no voting rights as a shareholder (in any and all matters whatsoever) until the consummation of an initial public offering of the Company's securities (an "IPO"). Until an IPO, such Shares shall be voted by a proxy pursuant to the directions of the Board, such proxy to be to the person or persons designated by the Board. All Shares issued upon exercise of the Options shall entitle the holder thereof to receive dividends and other distributions thereon.

7. VESTING

Unless Exhibit B to the Option Agreement provides otherwise, one-fourth
(1/4) of the Options shall vest (i.e., Options shall become exercisable)
at the end of the first year of an Optionee's continuous services or employment with the group, and one-thirty-sixth (1/36) of the remaining Options shall vest per month of such continuous employment over the next thirty-six months (the "VESTING DATES").

8. OPTION PRICE

8.1 The purchase price of each Share subject to an Option or any portion thereof shall be determined by the Committee in its sole and absolute discretion in accordance with applicable law, subject to any guidelines as may be determined by the Board from time to time.

8.2 The Option price shall be payable upon the exercise of the Option in a form satisfactory to the Committee, including without limitation, by cash or check. The Committee shall have the authority to postpone the date of payment on such terms as it may determine.

9. ADJUSTMENTS

Upon the occurrence of any of the following described events, the Optionee's rights to purchase Shares under the Option Plan shall be adjusted as hereafter provided:

9.1 In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company while unexercised Options remain outstanding under the Option Plan the successor corporation or a Parent or subsidiary of such successor corporation or the purchasing corporation may assume the unexercised Options outstanding under the Option Plan or may substitute for the Shares subject to the unexercised portions of such outstanding Options an appropriate number of shares of each class of shares or other securities of the successor or purchasing corporation or cash or property which were distributed to the shareholders of the Company in respect of such shares. In the event of substitution of shares or securities appropriate adjustments shall be made to the purchase price per share to reflect such action, all as will be determined by the Committee whose determination shall be final. In the event that the successor or purchasing corporation does not agree to assume or substitute as described in this Section 9.1, the Options shall terminate as of the date of the closing of the above merger or sale, as applicable.

9.2 In the event of the proposed liquidation or dissolution of the Company, the Company shall notify the Optionee at least fifteen
(15) days prior to such proposed action. To

the extent not previously exercised, the Options shall terminate immediately prior to the consummation of such proposed action.

9.3 If the outstanding shares of the Company shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination or exchange of shares, recapitalization, or any other like event by or of the Company, and as often as the same shall occur, then the number, class and kind of Shares subject to this Option Plan or subject to any Options therefore granted, and the Option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of Shares without changing the aggregate Option price, provided, however, that no adjustment shall be made by reason of the distribution of subscription rights on outstanding shares. Upon the occurrence of any of the foregoing, the class and aggregate number of Shares issuable pursuant to this Option Plan (as set forth in Section 6 hereof), in respect of which Options have not yet been exercised, shall be appropriately adjusted, all as may be determined by the Board who's determination shall be final.

9.4 Anything herein to the contrary notwithstanding, if prior to the completion of an IPO, all or substantially all of the shares of the Company are to be sold, or upon a merger or reorganization or the like, the shares of the Company, or any class thereof, are to be exchanged for securities of another Company, then in such event, each Optionee shall be obliged to sell or exchange, as the case may be, the shares such Optionee purchased under the Option Plan, in accordance with the instructions then issued by the Board whose determination shall be final.

10. TERM AND EXERCISE OF OPTIONS

10.1 The Options shall be exercised by the Optionee by giving written notice to the Company, in such form and method as may be determined by the Company and the Trustee, which exercise shall be effective upon receipt of such notice by the Company at its principal office. The notice shall specify the number of Shares with respect to which Options are being exercised.

10.2 Each Option granted under this Option Plan shall be exercisable following the exercise dates and for the number of Shares as shall be provided in EXHIBIT B to the Option Agreement. However no Option shall be exercisable after the Expiration Date, as defined for each Optionee in his Option Agreement.

10.3 Options granted under the Option Plan shall not be transferable by Optionees other than by will or laws of descent and distribution, and during an Optionee's lifetime shall be exercisable only by that Optionee.

10.4 The Options may be exercised by the Optionee in whole at any time or in part from time to time, to the extent that the Options become vested, prior to the Expiration

Date, and provided that, subject to the provisions of Section 10.6 below, the Optionee is an employee, a consultant or a contractor of the Group at all times during the period beginning with the granting of the Option and ending upon the date of exercise.

10.5 Subject to the provisions of Section 10.6 below, in the event of termination of the Optionee's employment or services with the Group, all Options granted to the Optionee will immediately expire. A notice of termination of employment or services shall be deemed to constitute termination of employment or services with Group.

10.6 Notwithstanding anything to the contrary previously stated, an Option may be exercised after the date of termination of the Optionee's services or employment with the Group during an additional period of time beyond the date of such termination, but only with respect to the number of Options already vested according to the Vesting Dates, if:

10.6.1 termination is without Cause, in which event any Options still in force and unexpired may be exercised within a period of 90 (ninety) days from the date of such termination.

10.6.2 termination is the result of death or disability of the Optionee, in which event any Options still in force and unexpired may be exercised within a period of 90 (ninety) days from the date of termination.

10.6.3 prior to the date of such termination, the Committee shall authorize an extension of the terms of all or part of the Options beyond the date of such termination for a period not to exceed the period during which the Options by their terms would otherwise have been exercisable.

The term "CAUSE" shall mean any action, omission or state of affairs related to the Optionee which the Committee or the Boards decides, in its sole discretion, is against the interests of the Company.

10.7 To avoid doubt, the holders of Options shall not have any of the rights or privileges of shareholders of the Company in respect of any Shares purchasable upon the exercise of any part of an Option, nor shall they be deemed to be a class of shareholders or creditors of the Company for purpose of the operation of section 233 of the Companies Ordinance or any successor to such section, until registration of the Optionee as holder of such Shares in the Company's register of members.

10.8 Any form of Option Agreement authorized by this Option Plan may contain such other provisions as the Committee may, from time to time, deem advisable. Without limiting the foregoing, the Committee may, with the consent of the Optionee, from time to time cancel all or any portion of any Option then subject to exercise, and the

Company's obligation in respect of such Option may be discharged by (i) payment to the Optionee of an amount in cash equal to the excess, if any, of the Fair Market Value of the Shares at the date of such cancellation subject to the portion of the Option so canceled over the aggregate purchase price of such Shares, (ii) the issuance or transfer to the Optionee of Shares of the Company with a Fair Market Value at the date of such transfer equal to any such excess, or (iii) a combination of cash and shares with a combined value equal to any such excess, all as determined by the Committee in its sole discretion.

11. DIVIDENDS

With respect to all Shares (but not unexercised Options) issued upon the exercise of Options purchased by the Optionee and held by the Trustee, the Optionee shall be entitled to receive dividends in accordance with the quantity of such Shares, and subject to any applicable taxation on distribution of dividends. During the period in which Shares issued to the Trustee on behalf of a Optionee are held by the Trustee, the cash dividends paid with respect thereto shall be paid directly to the Optionee.

12. ASSIGNABILITY AND SALE OF OPTIONS

No Option, purchasable hereunder, whether fully paid or not, shall be assignable, transferable or given as collateral or any right with respect to them given to any third party whatsoever, and during the lifetime of the Optionee each and all of such Optionee's rights to purchase Shares hereunder shall be exercisable only by the Optionee.

As long as the Shares are held by the Trustee in favor of the Optionee, then all rights the Optionee possesses over the Shares are personal, can not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

13. TERM OF THE OPTION PLAN

The Option Plan shall be effective as of the day it was adopted by the Board and shall terminate at the end of 60 months from such day of adoption.

14. AMENDMENTS OR TERMINATION

The Board may, at any time and from time to time, subject to the written consent of the Trustee, amend, alter or discontinue the Option Plan, except that no amendment or alteration shall be made which would impair the rights of the holder of any Option therefore granted, without his consent.

15. GOVERNMENT REGULATIONS

The Option Plan, and the granting and exercise of Options hereunder, and the obligation of the Company to sell and deliver Shares under such Options, shall be subject to all applicable laws, rules, and regulations, whether of the State of Israel or of the United States or any other State having jurisdiction over the Company and the Optionee, including the registration of the Shares under the United States Securities Act of 1933, and to such approvals by any governmental agencies or national securities exchanges as may be required.

16. CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES

Neither the Option Plan nor the Option Agreement with the Optionee shall impose any obligation on the Group, to continue any Optionee in its employ or the hiring by the Group of the Optionee's services, and nothing in this Option Plan or in any Option granted pursuant thereto shall confer upon any Optionee any right to continue in the employ or service of the Group or restrict the right of the Group to terminate such service or employment at any time.

17. GOVERNING LAW & JURISDICTION

This Option Plan 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. The competent courts of Tel-Aviv, Israel shall have sole jurisdiction in any matters pertaining to this Option Plan.

18. TAX CONSEQUENCES

Any tax consequences arising from the grant or exercise of any Option, from the payment for Shares covered thereby or from any other event or act (of the Company, the Trustee or the Optionee), hereunder, shall be borne solely by the Optionee. The Company and/or the Trustee shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the Optionee shall agree to indemnify the Company and 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, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Optionee. The Committee and/or the Trustee shall not be required to release any Share certificate to an Optionee until all required payments have been fully made.

19. NON-EXCLUSIVITY OF THE OPTION PLAN

The adoption of the Option Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Option Plan or under the Share Option Agreements previously issued to Israeli employees, and such arrangements may be either applicable generally or only in specific cases.

20. MULTIPLE AGREEMENTS

The terms of each Option may differ from other Options granted under this Option Plan at the same time, or at any other time. The Committee may also grant more than one Option to a given Optionee during the term of this Option Plan, either in addition to, or in substitution for, one or more Options previously granted to that Optionee.

EXHIBIT B TO THE OPTION AGREEMENT

TERMS OF THE OPTION

EXHIBIT C TO THE OPTION AGREEMENT

PROXY

Mr.____________ and Mr.______________, or any of them, with power of substitution in each, are hereby authorized to represent the undersigned at any and all general meetings of CommTouch Software Ltd. (the "Company") (including general meetings convened for the purpose of adopting extraordinary resolutions) and to vote thereat on any and all matters the same number of Ordinary Shares of the Company as the undersigned would be entitled to vote if then personally present.

EXHIBIT 10.3

COMMTOUCH SOFTWARE LTD.

1999 EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS

                                                                 Page
                                                                 ----
Section 1       Establishment of the Plan .......................  1

Section 2       Definitions .....................................  1

Section 3       Shares Authorized ...............................  2

Section 4       Administration ..................................  3

Section 5       Eligibility and Participation ...................  3

Section 6       Offering and Purchase Periods ...................  4

Section 7       Purchase Price ..................................  4

Section 8       Employee Contributions ..........................  4

Section 9       Plan Accounts; Purchase of Shares ...............  5

Section 10      Withdrawal From the Plan ........................  5

Section 11      Taxes ...........................................  6

Section 12      Effect of Termination of Employment or Death.....  6

Section 13      Rights Not Transferable .........................  6

Section 14      Recapitalization, Etc ...........................  7

Section 15      Limitation on Stock Ownership ...................  7

Section 16      No Rights as an Employee ........................  7

Section 17      Rights as a Shareholder .........................  7

Section 18      Use of Funds ....................................  8

Section 19      Amendment or Termination of the Plan ............  8

Section 20      Governing Law ...................................  8

COMMTOUCH SOFTWARE LTD.

1999 EMPLOYEE STOCK PURCHASE PLAN

SECTION 1. ESTABLISHMENT OF THE PLAN.

The CommTouch Software Ltd. qualified 1999 Employee Stock Purchase Plan (the "Plan") was established to provide Eligible Employees with an opportunity to purchase the Company's Ordinary Shares so that they may increase their proprietary interest in the success of the Company. The Plan, which provides for the purchase of stock through after-tax payroll withholding, is intended to qualify under Section 423 of the Code.

SECTION 2. DEFINITIONS.

(a) "Board of Directors" or "Board" means the Board of Directors of the Company, or an authorized committee of the Board.

(b) "Code" means the Internal Revenue Code of 1986, as amended.

(c) "Company" means CommTouch Software Ltd., a corporation formed under the laws of the State of Israel.

(d) "Compensation" means the compensation paid to a Participant in cash, including overtime and shift differential, incentive compensation, commissions and other bonuses; provided, however, that for purposes of determining a Participant's compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election.

(e) "Eligible Employee" means any Employee of a Participating Company
(i) who is employed by the Participating Company on or prior to the Offering Date, (ii) who is customarily employed for more than 20 hours per week, and
(iii) who is customarily employed for more than five months per calendar year.

In the event an Eligible Employee fails to remain in the continuous employ of a Participating Company customarily for at least 20 hours per week during an Offering Period or at least five months per calendar year, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his or her account will be returned to him or her; provided that a Participant who goes on an unpaid leave of absence shall be permitted to remain in the Plan with respect to an Offering Period which commenced prior to such leave of absence. If such Participant is not guaranteed reemployment by contract or statute and the leave of absence extends beyond 90 days, such Participant shall be deemed to have terminated employment on the 91st day of such leave of absence. Payroll deductions for a Participant who has been on an unpaid leave of absence will resume at the same rate as in effect prior to such leave upon return to work unless changed by such Participant or unless the Participant has been on an unpaid leave of absence either throughout an entire Offering Period or for more than 90 days, in which case the Participant shall not be permitted

to re-enter the Plan until a participation agreement is filed with respect to a subsequent Offering Period that commences after such Participant has returned to work from the unpaid leave of absence.

(f) "Employee" means any employee of a Participating Company.

(g) "Fair Market Value" shall mean (i) the closing price of an Ordinary Share on the principal exchange on which the Ordinary Shares are trading, or
(ii) if the Ordinary Shares are not traded on an exchange but are quoted on the Nasdaq National Market or a successor quotation system, the closing price on the Nasdaq National Market or such successor quotation system, or (iii) if the Ordinary Shares are not traded on an exchange or quoted on the Nasdaq National Market or a successor quotation system, the fair market value of an Ordinary Share as determined by the Plan Administrator in good faith. Such determination shall be conclusive and binding on all persons.

(h) "Offering Date" means the first day of an Offering Period.

(i) "Offering Period" means a period during which contributions may be made toward the purchase of Ordinary Shares under the Plan, as determined pursuant to Section 6.

(j) "Ordinary Shares" means the Ordinary Shares, par value NIS 1.0, of the Company.

(k) "Participant" means an Eligible Employee who elects to participate in the Plan, as provided in Section 5.

(l) "Participating Company" means the Company and such present or future Subsidiaries of the Company as the Board of Directors shall from time to time designate.

(m) "Plan Account" means the account established for each Participant pursuant to Section 9(a).

(n) "Plan Administrator" means the administrator appointed by the Board pursuant to Section 4.

(o) "Purchase Price" means the price at which Participants may purchase Ordinary Shares under Section 5 of the Plan, as determined pursuant to Section 7.

(p) "Purchase Date" means the last day of each Purchase Period.

(q) "Purchase Period" means a period commencing on the Offering Date or on the day after a Purchase Date and ending on a Purchase Date, as described in
Section 6.

(r) "Subsidiary" means a subsidiary corporation as defined in Section 424 of the Code.

SECTION 3. SHARES AUTHORIZED.

Subject to adjustment as provided in Section 14, the maximum aggregate number of Ordinary Shares that may be offered under the Plan shall initially be 150,000; provided, however, that the number of Ordinary Shares that may be offered under the Plan shall be increased as of January 1 of

each year by 110 percent of the number of shares purchased under the Plan in the previous calendar year.

SECTION 4. ADMINISTRATION.

(a) The Plan shall be administered by a Plan Administrator appointed by the Board of Directors. The interpretation and construction by the Plan Administrator of any provision of the Plan or of any right to purchase Ordinary Shares hereunder shall be conclusive and binding on all persons.

(b) No member of the Board or the Plan Administrator shall be liable for any action or determination made in good faith with respect to the Plan or the right to purchase Ordinary Shares hereunder. The Plan Administrator shall be indemnified by the Company against the reasonable expenses, including attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which it may be a party by reason of any action taken or failure to act under or in connection with the Plan or any stock purchased thereunder, and against all amounts paid by it in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by it in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that the Plan Administrator is liable for gross negligence or misconduct in the performance of its duties; provided that within 60 days after institution of any such action, suit or proceeding, the Plan Administrator shall in writing offer the Company the opportunity, at the Company's own expense, to handle and defend the same.

(c) All costs and expenses incurred in administering the Plan shall be paid by the Company. The Board or the Plan Administrator may request advice for assistance or employ such other persons as are necessary for proper administration of the Plan.

SECTION 5. ELIGIBILITY AND PARTICIPATION.

(a) Any person who qualifies or will qualify as an Eligible Employee on the Offering Date with respect to an Offering Period may elect to participate in the Plan for such Offering Period. An Eligible Employee may elect to participate by executing the participation agreement prescribed for such purpose by the Plan Administrator. The participation agreement shall be filed with the Plan Administrator no later than two weeks prior to the applicable Offering Date or such other deadline as is prescribed by the Plan Administrator. The Eligible Employee shall designate in the participation agreement the percentage of his or her Compensation which he or she elects to have withheld for the purchase of Ordinary Shares, which may be any percentage of the Participant's Compensation up to a maximum of 15 percent. In the event that the Fair Market Value of Ordinary Shares on the last trading day before the commencement of the Offering Period in which the Participant is enrolled is higher than on the last trading day before the commencement of any subsequent Offering Period, the Participant shall automatically be re-enrolled for such subsequent Offering Period, unless the Participant elects to withdraw during the current Offering Period by delivering a written notice, in form satisfactory to the Board, to the Plan Administrator. When a Participant reaches the end of an Offering Period but his or her participation is to continue, then such Participant shall automatically be re-enrolled for the Offering Period that commences immediately after the end of the prior Offering Period.

(b) By enrolling in the Plan, a Participant shall be deemed to have elected to purchase the maximum number of whole Ordinary Shares that can be purchased with the amount of the Participant's Compensation which is withheld during each Purchase Period.

(c) Once enrolled, a Participant will continue to participate in the Plan for each succeeding Purchase and Offering Period until he or she terminates participation or ceases to qualify as an Eligible Employee. A Participant who withdraws from the Plan in accordance with Section 10 may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Section 5(a).

SECTION 6. OFFERING AND PURCHASE PERIODS.

The Plan shall be implemented by one or more Offering Periods of not more than 24 months each. The Board of Directors may determine the duration of each Offering Period and the commencement dates. The Board may determine to include one or more Purchase Periods within an Offering Period. The first Offering Period shall commence on the first business day on which price quotations for the Company's Ordinary Shares are available on the Nasdaq National Market and shall end on August 14, 2001, and shall contain four Purchase Periods commencing on the first day of the first Offering Period, February 15, 2000, August 15, 2000 and February 15, 2001. Thereafter, unless changed by the Board, the duration of each subsequent Offering Period shall be two years, commencing on February 15 or August 15 and ending 24 months later on February 14 or August 14, and shall contain four Purchase Periods commencing on each February 14 and August 14 during each such Offering Period.

SECTION 7. PURCHASE PRICE.

The Purchase Price for each Ordinary Share shall be the lesser of (i) 85% of the Fair Market Value of such Ordinary Share on the last trading day before the Offering Date (provided, however, in the case of the first Offering Period, this number shall be 85% of the price per share at which the Company's Ordinary Shares are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Ordinary Shares pursuant to a registration statement filed with the SEC) or (ii) 85% of the Fair Market Value of such Ordinary Share on the last trading day of the applicable Purchase Period.

SECTION 8. EMPLOYEE CONTRIBUTIONS.

A Participant may purchase Ordinary Shares under the Plan solely by means of payroll deductions. Payroll deductions, as designated by the Participant pursuant to Section 5(a), shall commence with the first paycheck issued during the Offering Period and shall be deducted from each subsequent paycheck throughout the Offering Period. If a Participant desires to change the rate of payroll withholding during the Offering Period, he or she may do so, if permitted by the Plan Administrator, only one time during an Offering Period by filing a new participation agreement with the Plan Administrator. Such a change may be either an increase or a decrease and will be effective no later than the first day of the second payroll period which begins following the receipt of the new participation agreement. If a Participant desires to increase or decrease the rate of payroll

withholding more than one time during the participation period, he or she may do so effective for the next Offering Period by filing a new participation agreement with the Plan Administrator on or before the date specified by the Plan Administrator, and if none is stated, then no later than the first day of the Offering Period for which such change is to be effective.

SECTION 9. PLAN ACCOUNTS; PURCHASE OF SHARES.

(a) The Company will maintain a Plan Account on its books in the name of each Participant. At the close of each pay period, the amount deducted from the Participant's Compensation will be credited to the Participant's Plan Account. No interest shall accrue on any amounts held in the Participant's Plan Account.

(b) As of the last day of each Purchase Period, the amount then in the Participant's Plan Account will be divided by the Purchase Price, and the number of whole shares which results (subject to the limitations described in Sections
5(b), 9(c) and 15) shall be purchased from the Company with the funds in the Participant's Plan Account. Foreign currencies will be converted to U.S. dollars based on the foreign currency exchange rate as quoted in the Wall Street Journal on the Purchase Date, or such other reasonable method selected by the Plan Administrator that does not prevent the Plan from satisfying the requirements of
Section 423 of the Code. Shares representing the number of Ordinary Shares so purchased shall be electronically delivered to a brokerage account designated by the Plan Administrator and kept in such account pursuant to a participation agreement between each Participant and the Company and subject to the conditions described therein, which may include a requirement that Ordinary Shares be held and not sold for certain time periods.

(c) In the event that the aggregate number of Ordinary Shares that all Participants elect to purchase during a Purchase Period shall exceed the number of shares remaining available for issuance under the Plan, then the number of shares to which each Participant shall become entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the sum of the number of shares the Participant has elected to purchase during that Purchase Period pursuant to Section 5, and the denominator of which is the sum of the number of shares which all employees have elected to purchase during that Purchase Period pursuant to Section 5. Any cash amount remaining in the Participant's Plan Account under these circumstances shall be refunded to the Participant.

(d) Any amount remaining in the Participant's Plan Account caused by a surplus due to fractional shares after deducting the amount of the Purchase Price for the number of whole shares issued to the Participant shall be carried over in the Participant's Plan Account for the succeeding Purchase Period, without interest. Any amount remaining in the Participant's Plan Account caused by anything other than a surplus due to fractional shares shall be refunded to the Participant in cash, without interest.

(e) As soon as practicable following the end of each Purchase Period, the Company shall deliver to each Participant a Plan Account statement setting forth the amount of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

SECTION 10. WITHDRAWAL FROM THE PLAN.

A Participant may elect to withdraw from participation in a Purchase Period at any time up to the last day of the Purchase Period by filing the prescribed form with the Plan Administrator. A Participant may elect to withdraw (or not withdraw) from participation in an Offering Period at any time up to the last day of the Offering Period by filing the prescribed form with the Plan Administrator. As soon as practicable after a withdrawal, payroll deductions shall cease and all amounts credited to the Participant's Plan Account will be refunded in cash, without interest. A Participant who has withdrawn from an Offering Period shall not be a Participant in future Offering Periods, unless he or she again enrolls in accordance with the provisions of Section 5.

SECTION 11. TAXES.

The Participant shall make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign tax obligations that may arise in connection with the disposition of the Ordinary Shares acquired under the Plan. If required by the applicable tax authority, these arrangements may include withholding (or tendering back) of Ordinary Shares, or withholding amounts from the Participant's compensation.

SECTION 12. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH.

(a) Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under
Section 10. A transfer from one Participating Company to another shall not be treated as a termination of employment.

(b) A Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's Plan Account in the event of such Participant's death prior to the last day of a Purchase Period. A Participant may also file a written designation of a beneficiary who is to receive shares and cash, if any, from the Participant's Plan Account in the event of such Participant's death subsequent to the purchase of shares but prior to delivery to his or her account of such shares and cash.

(c) A designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant in the absence of a valid designation of a beneficiary who is living at the time of such Participant's death, the Company shall deliver such cash and/or shares to the executor or administrator of the estate of the Participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such cash and/or shares to the spouse or to any one or more dependents or relatives of the Participant; or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

SECTION 13. RIGHTS NOT TRANSFERABLE.

The rights or interests of any Participant in the Plan, or in any Ordinary Shares or money to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or by any other manner other than as permitted by the Code or by will or the laws of descent and distribution. If a Participant attempts to transfer, assign or otherwise

encumber his or her rights or interest under the Plan, other than as permitted by the Code or by will or the laws of descent and distribution, such act shall be treated as an automatic withdrawal under Section 10.

SECTION 14. RECAPITALIZATION, ETC.

(a) The aggregate number of Ordinary Shares offered under the Plan, the number and price of shares which any Participant has elected to purchase pursuant to Section 5 and the maximum number of shares which a Participant may elect to purchase under the Plan in any Offering Period shall be proportionately adjusted for any increase or decrease in the number of issued Ordinary Shares resulting from a subdivision or consolidation of shares or any other capital adjustment, the payment of a stock dividend, or other increase or decrease in such shares effected without receipt of consideration by the Company.

(b) In the event of a dissolution or liquidation of the Company, or a merger or consolidation to which the Company is a constituent corporation, this Plan shall terminate unless the plan of merger, consolidation or reorganization provides otherwise, and all amounts paid by each Participant toward the Purchase Price of Ordinary Shares hereunder shall be refunded, without interest.

(c) The Plan shall in no event be construed to restrict in any way the Company's right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.

SECTION 15. LIMITATION ON STOCK OWNERSHIP.

Notwithstanding any provision herein to the contrary, no Participant shall be permitted to elect to participate in the Plan (i) if such Participant, immediately after his or her election to participate, would own stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company, or (ii) if under the terms of the Plan the right of the Employee to purchase Ordinary Shares under this Plan and all other qualified employee stock purchase plans of the Company or its Subsidiaries would accrue at a rate that exceeds $25,000 of the Fair Market Value of such Ordinary Shares (determined at the time such right is granted) for each calendar year for which such right is outstanding at any time. For purposes of this Section 15, ownership of stock shall be determined by the attribution rules of Section 424(d) of the Code, and Participants shall be considered to own any Ordinary Shares which they have a right to purchase under this or any other stock plan.

SECTION 16. NO RIGHTS AS AN EMPLOYEE.

Nothing in the Plan shall be construed to give any person the right to remain in the employ of a Participating Company. Each Participating Company reserves the right to terminate the employment of any person at any time and for any reason.

SECTION 17. RIGHTS AS A SHAREHOLDER.

A Participant shall have no rights as a shareholder with respect to any shares he or she may have a right to purchase under the Plan until the date of issuance of the stock to the brokerage account designated by the Plan Administrator for Ordinary Shares issued pursuant to the Plan.

SECTION 18. USE OF FUNDS.

All payroll deductions received or held by the Company under the Plan may be used by the Company for general corporate purposes, and the Company shall not be obligated to segregate such payroll deductions in separate accounts.

SECTION 19. AMENDMENT OR TERMINATION OF THE PLAN.

The Board of Directors shall have the right to amend, modify or terminate the Plan at any time without notice. An amendment of the Plan shall be subject to shareholder approval only to the extent required by applicable laws, regulations or rules. Amendments to the Plan to comply with the requirements of a foreign country may be adopted by the Plan Administrator to the extent those amendments do not prevent the Plan from satisfying the requirements of Section 423 of the Code.

SECTION 20. GOVERNING LAW.

The Plan shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.

* * * *

Approved by the Board of Directors on April 18, 1999.

Approved by the Shareholders of the Company on June 8, 1999.

EXHIBIT 10.4

COMMTOUCH SOFTWARE LTD.

1999 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

1. PURPOSE.

The purpose of this Plan is to offer Nonemployee Directors of CommTouch Software Ltd. an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Ordinary Shares of the Company. This Plan provides for the grant of Options to purchase Shares. Options granted hereunder shall be "Nonstatutory Options," and shall not include "incentive stock options" intended to qualify for treatment under Sections 421 and 422 of the Internal Revenue Code of 1986, as amended.

2. DEFINITIONS.

As used herein, the following definitions shall apply:

(a) "ADMINISTRATOR" shall mean the entity, either the Board or the committee of the Board, responsible for administering this Plan, as provided in Section 3.

(b) "AFFILIATE" means a parent or subsidiary corporation as defined in Sections 424(e) and (f) of the Code.

(c) "ANNUAL OPTION" shall have the meaning set forth in
Section 6(b).

(d) "BOARD" shall mean the Board of Directors of the Company, as constituted from time to time.

(e) "CHANGE IN CONTROL" shall mean the occurrence of any one of the following:

(i) any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, an Affiliate, or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities;

(ii) the election of any director of the Company who was not a candidate proposed by a majority of the Board in office prior to the time of such election; or

(iii) the dissolution or liquidation (partial or total) of the Company or a sale of assets involving 50% or more of the assets of the Company, or any merger or reorganization of the Company, whether or not another entity is the survivor, or other transaction

pursuant to which the holders, as a group, of all of the shares of the Company outstanding prior to the transaction hold, as a group, less than 50% of the shares of the Company outstanding after the transaction.

(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute.

(g) "COMPANY" shall mean CommTouch Software Ltd., an Israeli corporation.

(h) "DISABILITY" means permanent and total disability as determined by the Administrator in accordance with the standards set forth in
Section 22(e)(3) of the Code.

(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.

(j) "EXPIRATION DATE" shall mean the last day of the term of an Option established under Section 6(e).

(k) "FAIR MARKET VALUE" means as of any given date (a) the closing price of the Ordinary Shares as reported by the Nasdaq National Market;
(b) if the Ordinary Shares are no longer quoted on the Nasdaq National Market but are listed on an established stock exchange or quoted on any other established interdealer quotation system, the closing price for the Ordinary Shares on such exchange or system, as reported in the Wall Street Journal; or
(c) if the Ordinary Shares are not traded on an exchange or quoted on the Nasdaq National Market or a successor quotation system, the fair market value of an Ordinary Share as determined by the Board in good faith. Such determination shall be conclusive and binding on all persons.

(l) "INITIAL OPTION" shall have the meaning set forth in
Section 6(a).

(m) "NONEMPLOYEE DIRECTOR" shall mean any person who is a member of the Board but is not an employee of the Company or any Affiliate of the Company and has not been an employee of the Company or any Affiliate of the Company at any time during the preceding 12 months. Service as a director does not in itself constitute employment for purposes of this definition.

(n) "OPTION" shall mean a stock option granted pursuant to this Plan. Each Option shall be a nonstatutory option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(o) "OPTION AGREEMENT" shall mean the written agreement described in Section 6 evidencing the grant of an Option to a Nonemployee Director and containing the terms, conditions and restrictions pertaining to such Option.

(p) "OPTIONEE" shall mean a Nonemployee Director who holds an Option.

(q) "ORDINARY SHARES" shall mean the Ordinary Shares of the Company.

(r) "PLAN" shall mean this CommTouch Software Ltd. 1999 Nonemployee Directors Stock Option Plan, as it may be amended from time to time.

(s) "SECTION" unless the context clearly indicates otherwise, shall refer to a Section of this Plan.

(t) "SHARES" shall mean the Ordinary Shares subject to an Option granted under this Plan.

(u) "TAX DATE" means the date defined in Section 7(c).

(v) "TERMINATION" means, for purposes of the Plan, with respect to an Optionee, that the Optionee has ceased to be, for any reason, a director of the Company.

3. ADMINISTRATION.

(a) ADMINISTRATOR. The Plan shall be administered by the Board or, upon delegation by the Board, by a committee consisting of not fewer than two non-employee directors (as such term is defined in Rule 16b-3(b)(3)(i) of the Exchange Act) (in either case, the "Administrator"). The Administrator shall have no authority, discretion or power to select the Nonemployee Directors who will receive Options hereunder or to set the number of shares to be covered by each Option granted hereunder, the exercise price of such Option, the timing of the grant of such Option or the period within which such Option may be exercised; provided, however, that the Administrator shall have the discretion to change the exercise price of an outstanding option granted under the Plan or to issue new options under the Plan with a lower exercise price in exchange for outstanding options granted under the Plan in connection with a general repricing by the Company of outstanding options. In connection with the administration of the Plan, the Administrator shall have the powers possessed by the Board. The Administrator may act only by a majority of its members. The Administrator may delegate administrative duties to such employees of the Company as it deems proper, so long as such delegation is not otherwise prohibited by Rule 16b-3 under the Exchange Act. The Board at any time may terminate the authority delegated to any committee of the Board pursuant to this
Section 3(a) and revest in the Board the administration of the Plan.

(b) ADMINISTRATOR DETERMINATIONS BINDING. Subject to the limitations set forth in Section 3(a), the Administrator may adopt, alter and repeal administrative rules, guidelines and practices governing the Plan as it from time to time shall deem advisable, may interpret the terms and provisions of the Plan, any Option and any Option Agreement and may otherwise supervise the administration of the Plan. All decisions made by the Administrator under the Plan shall be binding on all persons, including the Company and Optionees. No member of the Administrator shall be liable for any action that he or she has in good faith taken or failed to take with respect to this Plan or any Option.

4. ELIGIBILITY.

Only Nonemployee Directors may receive Options under this Plan.

5. SHARES SUBJECT TO PLAN.

(a) AGGREGATE NUMBER. Subject to Section 9, the total number of Ordinary Shares reserved and available for issuance pursuant to Options under this Plan shall be 250,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or shares reacquired in private transactions or open market purchases, but all shares issued under the Plan regardless of source shall be counted against the 250,000 share limitation. If any Option terminates or expires without being exercised in full, the shares issuable under such Option shall again be available for issuance in connection with other Options. If Ordinary Shares issued pursuant to an Option are repurchased by the Company, such Ordinary Shares shall not again be available for issuance in connection with Options. To the extent the number of Ordinary Shares issued pursuant to an Option is reduced to satisfy withholding tax obligations, the number of shares withheld to satisfy the withholding tax obligations shall not be available for later grant under the Plan.

(b) NO RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights as a shareholder with respect to any Shares covered by his or her Option until an electronic transfer (as evidenced by the appropriate entry on the books of the Company or its duly authorized transfer agent) of such Shares is effected. Subject to Section 9, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions, or other rights for which the record date is prior to the date the certificate is issued.

6. GRANT OF OPTIONS.

(a) MANDATORY INITIAL OPTION GRANTS. Subject to the terms and conditions of this Plan, if any person who is not, and has not been in the preceding 12 months, an officer or employee of the Company and who has not previously been a member of the Board is elected or appointed a member of the Board, then on the effective date of such appointment or election the Company shall grant to such new Nonemployee Director an Option to purchase 10,000 shares at an exercise price equal to the Fair Market Value of such Shares on the date of such option grant. Any Option granted pursuant to this Section 6(a) shall be referred to as an "Initial Option."

(b) MANDATORY ANNUAL OPTION GRANTS. Subject to the terms and conditions of this Plan, on the date of the first meeting of the Board immediately following the annual meeting of shareholders of the Company (even if held on the same day as the meeting of shareholders) commencing in 1999, the Company shall grant to each Nonemployee Director then in office (other than a Nonemployee Director who received a grant under Section 6(a) on or after the record date for such annual meeting) an Option to purchase 10,000 shares at an exercise price equal to the Fair Market Value of such shares on the date of such option grant; provided, however, the grant date for grants made in connection with the annual shareholders meeting in

1999 shall be deemed to be the first business day on which price quotations for the Company's Ordinary Shares are available on the Nasdaq National Market and the Fair Market Value of the Ordinary Shares on such date shall be deemed to be the price at which Ordinary Shares were offered to the public on that day. Any Option granted pursuant to this Section 6(b) shall be referred to as an "Annual Option."

(c) VESTING OF INITIAL OPTION AND ANNUAL OPTION. Each Option granted under Section 6(a) or 6(b) shall become exercisable with respect to one fourth of the number of Shares covered by such Option three months after the date of grant and with respect to one third of the remaining shares subject to the Option every three months thereafter, so that the Option shall be fully exercisable on the first anniversary of the date such Option was granted.

(d) TERM. Subject to the other provisions of this Plan, each Option granted pursuant to this Plan shall have a term of ten years.

(e) LIMITATION ON OTHER GRANTS. The Administrator shall have no discretion to grant Options under this Plan other than as set forth in Sections 6(a) and 6(b).

(f) OPTION AGREEMENT. As soon as practicable after the grant of an Option, the Optionee and the Company shall enter into a written Option Agreement which specifies the date of grant, the number of Shares, the option price, and the other terms and conditions applicable to the Option.

(g) TRANSFERABILITY. No Option shall be transferable except that (I) an Option may be distributed by will or the laws of descent and distribution; or (ii) Optionee may transfer or assign an Option to (a) any family member or trust for the benefit of Optionee or a family member of Optionee, or (b) any entity which is an investor in the Company and of which Optionee is a general or limited partner or a member of senior management. The terms of this Plan shall be binding upon the executors, administrators, heirs, successors, assigns and transferees of the Optionee.

(h) LIMITS ON EXERCISE. Subject to the other provisions of this Plan, an Option shall be exercisable in such amounts as are specified in the Option Agreement.

(i) EXERCISE PROCEDURES. To the extent the right to purchase Shares has accrued, Options may be exercised, in whole or in part, from time to time, by written notice from the Optionee to the Company stating the number of Shares being purchased, accompanied by payment of the exercise price for the Shares, and other applicable amounts, as provided in Section 7.

(j) TERMINATION. In the event of Termination, Options held at the date of Termination, to the extent then exercisable, may be exercised in whole or in part at any time within three months after the date of Termination, (but in no event after the Expiration Date), but not thereafter. Notwithstanding the foregoing, if Termination is due to death or Disability, Options held at the date of Termination, to the extent then exercisable, may be exercised in

whole or in part at any time within two years from the date of Termination (but in no event after the Expiration Date) by the Optionee or by the Optionee's guardian or legal representative in the case of Disability or in the case of death, by the person to whom the Option is transferred by will or the laws of descent and distribution.

7. PAYMENT AND TAXES UPON EXERCISE OF OPTIONS.

(a) PURCHASE PRICE. The purchase price of Shares issued under this Plan shall be paid in full at the time an Option is exercised.

(b) DELIVERY OF PURCHASE PRICE. Optionees may make all or any portion of any payment due to the Company upon exercise of an Option or with respect to federal, state, local or foreign tax payable in connection with the exercise of an Option, by delivery of cash or check. Exercise of an Option may be made pursuant to a "cashless exercise/sale" procedure pursuant to which funds to pay for exercise of the Option are delivered to the Company by a broker upon receipt of stock from the Company, or pursuant to which Optionees obtain margin loans from brokers to fund the exercise of the Option.

(c) TAX WITHHOLDING. The Optionee shall pay to the Company in cash, promptly upon exercise of an Option or, if later, the date that the amount of such obligations becomes determinable (in either case, the "Tax Date"), all applicable federal, state, local and foreign withholding taxes that the Administrator, in its discretion, determines will result upon exercise of an Option or from a transfer or other disposition of the Ordinary Shares acquired upon exercise of an Option or otherwise related to an Option or the Ordinary Shares acquired in connection with an Option.

A person who has exercised an Option may make an election to have the Ordinary Shares to be obtained upon exercise of the Option withheld by the Company on behalf of the Optionee, to pay the amount of tax that the Administrator, in its discretion, determines to be required to be withheld by the Company.

Any Ordinary Shares tendered to or withheld by the Company will be valued at Fair Market Value on such date. The value of the Ordinary Shares tendered or withheld may not exceed the required federal, state, local and foreign withholding tax obligations as computed by the Company.

8. USE OF PROCEEDS.

Proceeds from the exercise of Options pursuant to this Plan shall be used for general corporate purposes.

9. ADJUSTMENT OF SHARES.

In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure affecting the Ordinary Shares,

appropriate adjustments shall be made by the Administrator in the aggregate number and kind of shares of stock reserved for issuance under the Plan and in the number, kind and exercise price of shares subject to outstanding Options; provided, however, that the number of shares subject to any Option shall always be a whole number.

10. EFFECT OF CHANGE IN CONTROL.

In the event of a "Change in Control," any Options outstanding as of the date such Change in Control is determined to have occurred and not then exercisable and vested shall become fully exercisable and vested.

11. NO RIGHT TO DIRECTORSHIP.

Neither this Plan nor any Option granted hereunder shall confer upon any Optionee any right with respect to continuation of the Optionee's membership on the Board or shall interfere in any way with provisions in the Company's Memorandum of Association and Articles of Association relating to the election, appointment, terms of office, and removal of members of the Board.

12. LEGAL REQUIREMENTS.

The Company shall not be obligated to offer or sell any Shares upon exercise of any Option unless the Shares are at that time effectively registered or exempt from registration under the federal securities laws and the offer and sale of the Shares are otherwise in compliance with all applicable securities laws and the regulations of any stock exchange on which the Company's securities may then be listed. The Company shall have no obligation to register the securities covered by this Plan under the federal securities laws or take any other steps as may be necessary to enable the securities covered by this Plan to be offered and sold under federal or other securities laws. Upon exercising all or any portion of an Option, an Optionee may be required to furnish representations or undertakings deemed appropriate by the Company to enable the offer and sale of the Shares or subsequent transfers of any interest in the Shares to comply with applicable securities laws. Certificates or records of electronic transfers evidencing Shares acquired upon exercise of Options shall bear any legend required by, or useful for purposes of compliance with, applicable securities laws, this Plan or the Option Agreements.

13. DURATION AND AMENDMENTS.

(a) DURATION. This Plan shall become effective upon the closing of the Company's initial public offering, provided that it has been adopted by the Board and approved by the shareholders of the Company, either by written consent or by approval of shareholders voting at a validly called shareholders' meeting. The Plan shall terminate automatically on the tenth anniversary of its effective date.

(b) AMENDMENT AND TERMINATION. The Board may amend, alter or discontinue the Plan or any Option, but no amendment, alteration or discontinuance shall be

made which would impair the rights of an Optionee under an outstanding Option without the Optionee's consent. No amendment shall require shareholder approval except (i) an increase in the total number of shares reserved for issuance under the Plan, (ii) to the extent required by applicable laws, rules or regulations or (iii) to the extent that the Board otherwise concludes that shareholder approval is advisable.

(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold under this Plan after the termination hereof, except upon exercise of an Option granted before termination. Termination or amendment of this Plan shall not affect any Shares previously issued and sold or any Option previously granted under this Plan.

14. RULE 16b-3.

With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with the applicable conditions of Rule 16b-3 under the Exchange Act. To the extent any provision of this Plan or action by the Administrator fails to so comply, it shall be adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed advisable by the Administrator. It shall be the responsibility of persons subject to Section 16 of the Exchange Act, not of the Company or the Administrator, to comply with the requirements of Section 16 of the Exchange Act; and neither the Company nor the Administrator shall be liable if this Plan or any transaction under this Plan fails to comply with the applicable conditions of Rule 16b-3, or if any such person incurs any liability under
Section 16 of the Exchange Act.

Approved by the Board of Directors on April 18, 1999.

Approved by the Shareholders of the Company on June 8, 1999, to be effective on the date of the closing of the Company's initial public offering of its ordinary shares.

Amended by the Board of Directors on August 9, 1999.