MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. CommTouch's actual results and the timing of certain events may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We are a leading global provider of outsourced email and messaging solutions. Our flexible and highly customizable solutions enable us to satisfy the unique email and messaging needs of a wide range of customers, including Web-based companies, small websites and businesses worldwide. As of June 30, 1999, we had over 109 business partners offering our Web-based email from their sites. Our business partners include Excite, Go2Net, FortuneCity, Talk City and Nippon Telephone and Telegraph. Through our business partners' sites we serve approximately 4.9 million emailboxes. In November 1998, we launched our ZapZone Network service, which enables small sites to provide email to their end users. As of June 30, 1999, we had registered approximately 103,000 sites through the ZapZone Network service, and were serving approximately 658,000 ZapZone Network emailboxes. Business partners may provide us with a large number of users but pay a relatively small minimum annual service fee. Consumers have historically been reluctant to pay for services on the Internet, and therefore end users may not be willing to pay for premium services. Since untargeted advertising on the Internet has not shown a significant success rate, advertisers may not be willing to pay us to provide banner advertising or direct e-marketing.

Business History and Transition

Email Client Software Business (1991 - 1997). From 1991 to 1997, we generated all of our revenue from sales of software licenses, maintenance and service for stand-alone email client software for both mainframes and personal computers. In 1996, we generated approximately $3.1 million in revenues from such software licenses.

Transition to Web-Based Email Services (1997). During 1996, the popularity of email at home and at work began to increase rapidly. Microsoft began bundling Outlook, its email client software, in "office suite" packages. At the same time, Netscape began to provide its email client software bundled in its Internet browser software. The entrance into the email client software market by both Microsoft and Netscape resulted in the rapid adoption of email as a mass-market communications channel. At the same time, use of the World Wide Web (Web) began to expand rapidly, and the market for stand-alone email client software began to be dominated by companies which bundled such software with operating systems and/or browsers. We recognized an opportunity to leverage our technology and experience in developing email software to pursue the market created by these two rapidly growing phenomena: email and the Web. As a result, we redeployed the efforts of our existing research and development personnel and independent contractors to adapt the technology embedded in Pronto 96 for use as a Web-based email service. We ceased all stand-alone email software license sales during 1997, and as a result, revenues in 1997 decreased to $899,000. To further support our

transition to providing Web-based email services, in 1997 we opened a marketing, sales and support office in Silicon Valley in order to have better access to Web-based business partners.

Web-Based Email Service Business (January 1998 - Present). In January 1998, we began to offer email services to business partners. Our services allow our business partners to provide free Web-based email to their end users, thus enhancing the business partner's online presence, increasing the frequency and duration of visits to the partner's website and creating an opportunity for the business partner and us to generate advertising and direct e-marketing revenue through email. Meanwhile, we recognized that webmasters on small sites were seeking a method to promote their sites and offer email to their users. In November 1998, we launched our ZapZone Network service which enables small sites to provide email to their end users at no cost in a matter of minutes.

Revenue Sources

Email Service Revenues. In 1998, our email service revenue was derived from service fees and setup and installation fees. Approximately 60.5% of our email service revenue resulted from contracts that provide for business partners to pay us minimum annual service fees. These agreements also typically provide for the business partner to pay us a share of revenues generated from the sale of banner advertisements on their email site. The minimum annual service fee is credited against the shared portion of the advertising revenue. Revenue from minimum annual service fees is recognized ratably over the contract term from the launch of the email site.

Some of our contracts with business partners provide for email service fees based solely on a share of banner advertising revenue, with no minimum annual commitment. In 1998, revenues from these contracts represented approximately 21.0% of our email service revenue. Revenues from sharing advertising are recognized when such revenues are earned by our business partner.

We anticipate that revenues from advertising will increase both in absolute dollars and as a percentage of total revenues. This is because we have recently attained a platform of approximately 4.9 million emailboxes through our business partners and we believe that we now have a large enough user base to be attractive to advertisers and to generate additional advertising revenues by targeting the user demographic objectives of the advertiser. In addition, by aggregating demographic information garnered from small websites, the ZapZone Network service is providing us with an additional opportunity to focus advertising efforts in a targeted manner. We anticipate that combined service fees and advertising revenues shared by business partners will continue to be our major source of revenue in the future.

The remaining 18.5% of email service revenues in 1998 consisted of setup and installation fees. We charge these fees in instances where the scope and complexity of the solution warrant such a fee. These revenues are recognized upon installation of the email site to which they relate. We expect that these revenues will increase in absolute dollars as such installations increase in number, but will decrease as a percentage of email service revenue in the future, because service fees and advertising revenues are expected to increase at a proportionally greater rate.

Premium Services. In March 1999, we launched our premium service offerings. These services enhance our core service and include features such as:

- Off-line email client access;

- Unified messaging;

- Additional disk storage space;

- Automated, user-defined email forwarding;

- Automated, rules-based pager notification; and

- Email-by-phone.

These services will be paid for by emailbox users. To date we have not generated any revenues from premium services but we anticipate that these revenues will be a meaningful component of our revenues in the future.

Direct E-Marketing. In December 1998, we began to offer direct e-marketing opportunities to ecommerce vendors. Ecommerce vendors seek channels through which they can market goods and services. Because of our installed user base and our agreements with our business partners, we can assist ecommerce companies in marketing their products to end users who have opted to receive offers by email. We share with our business partners the revenues from this direct e-marketing, which are earned either on a per-message basis or as a commission on products sold. To date we have made these offerings available to only a limited number of users. However, we anticipate that direct e-marketing revenues will be a meaningful component of our revenues in the future.

STRATEGIC TRANSACTION

Concurrently with the sale of the shares in the initial public offering we entered into an agreement with Go2Net, a network of branded, technology- and community-driven websites focused on personal finance, commerce, and games. Go2Net also develops Web-related software. Pursuant to the agreement we will offer Go2Net's end users with a private label email service, including our email, calendaring and other services. The services will be customized to the look and feel of Go2Net's websites. The terms of this agreement are substantially the same as our commercial agreements with other business partners except that we have agreed to share a materially greater portion of our advertising revenues with Go2Net than we are sharing under other similar agreements. In addition, in connection with the agreement, we issued to Go2Net a warrant to purchase 1,136,000 ordinary shares at a per share exercise price of $12.80, subject to adjustment as set forth in the warrant. The warrant is fully vested and non-forfeitable. The warrant will expire on July 16, 2004, the fifth anniversary of the public offering. The fair value of the warrant, estimated at $5.8 million, will be amortized to operating expenses ratably over the minimum term of the agreement, or one year. Simultaneously with the sale of the shares in the initial public offering, we sold 1,344,086 ordinary shares to Go2Net and Vulcan Ventures Incorporated at $14.88 per share in a private placement which was not registered with the Securities and Exchange Commission at the time of the initial public offering. In the future, we may have to issue in-the-money warrants to acquire our ordinary shares to business partners who provide us with a large base of potential end users. We may also have to provide these business partners with more favorable commercial terms than we have previously provided to our business partners. The issuance of in-the-money warrants and the grant of more favorable terms to business partners may further dilute our shareholders, increase our operating loss in the future and cause our stock price to fall.

                                  YEAR ENDED              THREE MONTHS         SIX MONTHS
                                 DECEMBER 31,            ENDED JUNE 30,      ENDED JUNE 30,
                          ---------------------------   -----------------   -----------------
                           1996      1997      1998      1998      1999      1998      1999
                          -------   -------   -------   -------   -------   -------   -------
                                                           (UNAUDITED)         (UNAUDITED)
Revenues:
  Email services........  $    --   $    --   $   389   $    59   $   553   $    91   $   899
  Software licenses,
     maintenance and
     services...........    3,134       899        --        --        --        --        --
                          -------   -------   -------   -------   -------   -------   -------
       Total revenues...    3,134       899       389        59       553        91       899
                          -------   -------   -------   -------   -------   -------   -------
Cost of revenues:
  Email services........       --        --       569        85       797       144     1,202
                          -------   -------   -------   -------   -------   -------   -------
  Software licenses,
     maintenance and
     services...........      463       165        --        --        --        --        --
       Total cost of
          revenues......      463       165       569        85       797        --        --
  Gross profit (loss)...    2,671       734      (180)      (26)     (244)      (53)     (303)
                          -------   -------   -------   -------   -------   -------   -------
Operating expenses:
  Research and
     development, net...    1,479     1,108     1,149       305       407       571       714
  Sales and marketing...    1,965     2,202     2,001       506     1,180       965     1,661
  General and
     administrative.....      465       829       604       137       780       275     1,587
  Amortization of stock-
     based employee
     deferred
     compensation.......       --        --        91         8     1,013        10     1,399
       Total operating
          expenses......    3,908     4,139     3,845       956     3,428     1,821     5,361
                          -------   -------   -------   -------   -------   -------   -------
  Operating loss........   (1,237)   (3,405)   (4,025)     (982)   (3,624)   (1,874)   (5,664)
  Interest expense and
     other, net.........      (45)      (68)     (326)      (59)        6       (86)     (265)
  Net loss..............  $(1,282)  $(3,473)  $(4,351)  $(1,041)  $(3,618)  $(1,960)  $(5,929)
                          =======   =======   =======   =======   =======   =======   =======

COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999

Revenues. Email service revenues increased from $59,000 for the three months ended June 30, 1998 to $553,000 for the three months ended June 30, 1999. We began providing email services during the three months ended March 31, 1998. Our business partners have grown from 13 at June 30, 1998 to over 109 business partners at June 30, 1999. Revenues from one customer, Excite, amounted to $55,000 and $110,000, or 9.9% and 12.2% of total revenues for the three and six months ended June 30, 1999, respectively. In the future, we expect revenues from Excite to decrease substantially as a percentage of email services revenue.

Cost of Revenues. Our cost of revenues increased from $85,000 for the three months ended June 30, 1998 to $797,000 for the three months ended June 30, 1999 and increased from $144,000 for the six months ended June 30, 1998 to $1,202,000 for the six months ended June 30, 1999 because of the growth of the number of business partners. Cost of revenues consisted primarily of costs related to Internet data center services from a third-party provider, depreciation of equipment, Internet access, personnel and related costs. We expect cost of revenues to increase on an absolute basis, primarily as a result of an increase in our email service revenues, but to decrease as a percentage of email service revenues due to economies of scale.

Research and Development Costs, Net. Research and development costs consist primarily of personnel and related costs, depreciation of equipment, supply costs and royalties paid to the Israeli Government for grants received in prior years for research and development activities. These royalties are paid at rates ranging from 3% to 5% of total revenues. We do not expect to receive further grants from the Israeli Government. At June 30, 1999, our outstanding contingent obligation was approximately $524,000. Research and development expense are charged to operations as incurred. Our research and development costs increased from $305,000 for the three months ended June 30, 1998 to $407,000 for the three months ended June 30, 1999, and from $571,000 for the six months ended June 30, 1998 to $714,000 for the six months ended June 30, 1999, due primarily to higher personnel and related costs. We expect that research and development costs, net, will increase in absolute dollar amounts due to increases in personnel costs related directly to new employees being hired to develop new service offerings, however such costs will decrease as a percentage of revenues.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related costs, public relations, direct sales efforts, including travel expenses and royalties paid to the Israeli Government for grants received in prior years for marketing activities. We have a contingent obligation to pay royalties to the Israeli Government for grants received in prior years for marketing activities at a rate of 3% of total revenues. At June 30, 1999, our outstanding contingent obligation was approximately $121,000. Our sales and marketing expenses increased from $506,000 for the three months ended June 30, 1998 to $1,180,000 for the three months ended June 30, 1999, and increased from $965,000 for the six months ended June 30, 1998 to $1,661,000 for the six months ended June 30, 1999, due primarily to marketing and other costs to support the growth of our email service revenues. We expect sales and marketing expenses to significantly increase in the future in absolute dollar amounts due to increases in personnel costs related directly to new employees being hired to conduct sales to business partners and the related market support to further develop our brand. We expect that for the next several quarters, the increase in sales and marketing will be somewhat proportionate to the increase in revenues. Once we achieve significant revenue growth, we expect that sales and marketing expenses will start to decline as a percentage of total revenues as we hire additional personnel and continue to support and develop the email service business.

General and Administrative. General and administrative costs consist primarily of personnel and related costs, professional services and facility costs. Our general and administrative expenses increased from $137,000 for the three months ended June 30, 1998 to $780,000 for the three months ended June 30, 1999, and increased from $275,000 for the six months ended June 30, 1998 to $1,587,000 for the six months ended June 30, 1999, due primarily to substantially higher personnel and related costs, facility costs, higher fees for outside professional services and other costs to support the growth of our email service revenues. We expect general and administrative costs to increase on an absolute basis due to increased personnel and related costs, higher facility costs associated with additional personnel and other costs necessary to support and develop the email service business. We expect that general and administrative expenses as a percentage of total revenues will start to decline in the next several quarters.

Amortization of Stock-based Employee Deferred Compensation. Our stock-based employee compensation expenses increased from $8,000 for the three months ended June 30, 1998 to $1,013,000 for the three months ended June 30, 1999, and from $10,000 for the six months ended June 30, 1998 to $1,399,000 for the six months ended June 30, 1999 due to the amortization of the aggregate of $1.3 million and $8.5 million in deferred compensation recorded during the three months and the six months ended June 30, 1999. The deferred compensation is being amortized using the sum-of-digits method over the vesting schedule, generally four years and will be slightly higher in the third quarter of 1999, then decreasing in each successive quarter.

Interest Income/(Expense) and Other Expense, Net. Our interest income/(expense) and other expense, net, increased from a net expense of $59,000 for the three months ended June 30, 1998 to a net income of $6,000 for the three months ended June 30, 1999 and from a net expense of $86,000 for the six months ended June 30, 1998 to a net expense of $265,000 for the six months ended June 30, 1999, due primarily to increased recognized costs of warrants granted to the Bank Lepituach Ha Taasia B'Israel Ltd. (Bank Lepituach Ha Taasia) net of interest income earned from cash and cash equivalents. In April 1999, we fully repaid the short-term bank line of credit to Bank Lepituach Ha Taasia.

Income Taxes. As of December 31, 1998, we had approximately $5.7 million of Israeli net operating loss carryforwards and $4.7 million of U.S. federal net operating loss carryforwards available to offset future taxable income. The U.S. net operating loss carryforwards will expire in various amounts in the years 2010 to 2016. The Israeli net operating loss carryforwards have no expiration date.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Revenues. In 1997, we ceased all sales of stand-alone email client software licenses, maintenance and services. Accordingly, revenue comparisons between 1996, 1997 and 1998 are not meaningful. In 1998, our email service revenues were $389,000, of which one customer, Excite, represented 54%. In the future, we expect revenues from Excite to decrease substantially as a percentage of email service revenue because the 1998 revenues from Excite included one-time payments for setup and installation. We had no email service revenue in 1997. Our revenues from software licenses and maintenance fees decreased from $3.1 million in 1996 to $899,000 in 1997 due to the change in our business model and the phasing out of our stand-alone email client software business.

Cost of Revenues. In 1998, our cost of revenues was $569,000 and consisted primarily of costs related to Internet data center services from a third-party provider, depreciation of equipment, Internet access, personnel and related costs. We expect cost of revenues to increase on an absolute basis, primarily as a result of an increase in our email service revenues, but to decrease as a percentage of email service revenues due to economies of scale. We had no email service costs in 1996 and 1997. In 1996 and 1997, our costs of revenues were $463,000 and $165,000. These costs consisted of expenses related to the stand-alone email software business, including personnel and related costs, media duplication and product packaging. The decrease in cost of revenues in 1997 from 1996 was due to the change in our business model as we phased out our stand-alone email client software business.

Research and Development Costs, Net. Research and development costs decreased from $1.5 million in 1996 to $1.1 million in 1997 because of $288,000 in off-setting royalty-bearing grants from the Israeli Government, recorded as a reduction of research and development costs. We have a contingent obligation to pay royalties at the rate of 3%-5% of total revenues. Our outstanding contingent obligation was approximately $411,000 as of December 31, 1998. Research and

development costs in 1998 remained relatively unchanged from 1997. However, in 1998 we transferred several key research and development personnel into our operations group to support and maintain our newly developed Web-based email services infrastructure. Costs relating to these personnel were included in cost of revenues in 1998. We expect that research and development costs, net, will increase due to increased personnel and related costs associated with the accelerated development of new email service offerings.

Sales and Marketing. Sales and marketing expenses were $2.0 million in 1996, $2.2 million in 1997 and $2.0 million in 1998. We have a contingent obligation to pay royalties to the Israeli Government for grants received in prior years for marketing activities at a rate of 3% of total revenue. This contingent obligation was approximately $121,000 at December 31, 1998.

General and Administrative. General and administrative costs were $465,000 in 1996, $829,000 in 1997 and $604,000 in 1998. The increase in 1997 was primarily due to the write-off of $171,000 for receivables related to the phasing out of our stand-alone email client software license sales.

Interest Expense and Other, Net. Interest expense and other, net, consists of interest payments and fair value of warrants granted in 1997 and 1998 in connection with a short-term bank line of credit. Interest expense and other expense, net, increased from $45,000 in 1996 to $68,000 in 1997 and to $326,000 in 1998. This increase in 1998 was due to a higher level of borrowing and change in the terms of the agreement with Bank Lepituach Ha Taasia to include the grant of warrants in addition to customary interest payments. In April 1999, we fully repaid that short-term bank line of credit.

Income Taxes. As of December 31, 1998, we had approximately $5.7 million of Israeli net operating loss carryforwards and $4.7 million of U.S. federal net operating loss carryforwards available to offset future taxable income. The U.S. net operating loss carryforwards will expire in various amounts in the years 2010 to 2016. The Israeli net operating loss carryforwards have no expiration date.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly statements of operations data for the five quarters ended June 30, 1999. This information has been derived from CommTouch's consolidated unaudited financial statements, which, in management's opinion, have been prepared on the same basis as the audited Consolidated Financial Statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with our audited Consolidated Financial Statements and the Notes thereto included elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period. Given the relatively small absolute dollar amounts in the operating results for each quarter presented below, non-periodic amounts accrued in one quarter cause significant fluctuations.

                                                            THREE MONTHS ENDED
                                      --------------------------------------------------------------
                                      JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,   JUNE 30,
                                        1998         1998            1998         1999        1999
                                      --------   -------------   ------------   ---------   --------
                                                              (IN THOUSANDS)
                                                               (UNAUDITED)
Total email service revenues........  $    59       $   130        $   168       $   346    $   553
Cost of email service revenues......       85           166            259           405        797
                                      -------       -------        -------       -------    -------
Gross profit (loss).................      (26)          (36)           (91)          (59)      (244)
                                      -------       -------        -------       -------    -------
Operating expenses:
  Research and development..........      305           308            270           307        407
  Sales and marketing...............      506           509            527           481      1,180
  General and administrative........      137           151            178           807        780
                                      -------       -------        -------       -------    -------
Amortization of stock-based employee
  deferred compensation.............        8            18             63           386      1,013
     Total operating expenses.......      956           986          1,038         1,981      3,380
                                      -------       -------        -------       -------    -------
Operating loss......................     (982)       (1,022)        (1,129)       (2,040)    (3,624)
Interest expense and other, net.....      (59)          (28)          (212)         (271)         6
Net loss............................  $(1,041)      $(1,050)       $(1,341)      $(2,311)   $(3,618)
                                      =======       =======        =======       =======    =======

FLUCTUATIONS IN QUARTERLY RESULTS

We have incurred operating losses since inception, and we cannot be certain that we will achieve profitability on a quarterly or annual basis in the future. Our results of operations have fluctuated and are likely to continue to fluctuate significantly from quarter to quarter as a result of a variety of factors, many of which are outside of our control. A relatively large expense in a quarter could have a negative effect on our financial performance in that quarter. Additionally, as a strategic response to a changing competitive environment, we may elect from time to time to make certain pricing, service, marketing or acquisition decisions that could have a negative effect on our quarterly financial performance. Other factors that may cause our future operating results to fluctuate include, but are not limited to:

- continued growth of the Internet and of email usage;

- demand for Web-based email services;

- our ability to attract and retain customers and maintain customer satisfaction;

- our ability to upgrade, develop and maintain our systems and infrastructure;

- the amount and timing of operating costs and capital expenditures relating to expansion of our business and infrastructure;

- technical difficulties or system outages;

- dollar/NIS exchange rate fluctuations;

- the announcement or introduction of new or enhanced services by our competitors;

- our ability to attract and retain qualified personnel with Internet industry expertise, particularly sales and marketing personnel;

- the pricing policies of our competitors;

- failure to increase our sales; and

- governmental regulation relating to the Internet, and email in particular.

In addition to the factors set forth above, our operating results will be impacted by the extent to which we incur non-cash charges associated with stock-based arrangements with employees and non-employees.

                 FEATURE                                     DESCRIPTION
                 -------                                     -----------
ELECTRONIC MAILBOX                          Includes a full range of industry-standard
                                            functionality, such as the ability for end
                                            users to create folders, attach electronic
                                            documents, store messages, maintain a contact
                                            center, distribute lists, establish user
                                            profiles and signatures.
PARTNER-BRANDED ELECTRONIC MAIL INTERFACE   Business partners offer our email services to
                                            their end users with the business partner's
                                            name included in the domain address. This
                                            repeated visibility of the business partner's
                                            name promotes brand awareness and customer
                                            loyalty. Additionally, our business partners
                                            can design the look and feel of their Web-
                                            based email interface with our proprietary
                                            customization wizard tool.
ENHANCED MANAGEMENT FEATURES                Includes advanced email functionality such as
                                            the ability to collect email from other email
                                            accounts, sort email and access a sent
                                            messages folder. Also includes a draft folder
                                            option, message notification upon login and
                                            IMAP4 support, which allows email folders to
                                            be accessed from multiple email environments.
CONTACT CENTER                              Enhanced address book functionality that
                                            includes integrated third-party instant
                                            messaging and chat.
CALENDAR INTEGRATION                        Online calendars and group scheduling are
                                            integrated with the end user's email interface
                                            and contact center, as well as to applications
                                            such as Microsoft Outlook and Palm Pilot
                                            software. (Completed in the third quarter of
                                            1999).
SPAM PROTECTION                             Advanced anti-spamming controls and email
                                            filtering.
MULTIPLE LANGUAGE CAPABILITY                Our email services are provided in 15
                                            languages: English, Chinese, Japanese,
                                            Spanish, French, German, Portuguese, Dutch,
                                            Finnish, Danish, Norwegian, Swedish, Russian,
                                            Hebrew and Italian. Additionally, we provide
                                            spell-checking in many of these languages and
                                            can support more than one language on any of
                                            our customer websites, except Hebrew.
KIDS' EMAIL                                 An email option that enables parents to
                                            control who may correspond electronically with
                                            their children.

                 FEATURE                                     DESCRIPTION
                 -------                                     -----------
OFF-LINE EMAIL CLIENT ACCESS                End users can access their emailbox using
                                            either a Web browser or their off-line client
                                            software, such as Microsoft Outlook.
UNIFIED MESSAGING                           This service enables the emailbox to become an
                                            integrated communications platform through
                                            which the user can access email and send and
                                            receive voicemail messages, faxes, and pages.
ADDITIONAL DISK SPACE STORAGE               End users can increase their storage capacity
                                            up to an additional ten megabytes of disk
                                            space to maintain more folders and messages in
                                            their emailbox.
AUTOMATED, USER-DEFINED EMAIL FORWARDING    Incoming emails can be automatically forwarded
                                            to an alternate emailbox based on the end
                                            user's pre-set criteria.
AUTOMATED, RULES-BASED PAGER NOTIFICATION   Incoming emails can be automatically forwarded
                                            to the end user's pager based on the end
                                            user's pre-set criteria.
EMAIL-BY-PHONE                              End users can call to have their email
                                            messages read to them using text-to-speech
                                            technology. End users have the option to reply
                                            with a voicemail message that is sent as a
                                            voice attachment, fax the email or can delete
                                            the message.
INTERNET PROTOCOL (IP) TELEPHONY ACCESS     Enables voice communication over the Internet
                                            that is integrated with the end user's
                                            emailbox.
WEBMASTER ADMINISTRATION TOOLS              Provides webmasters with enhanced website
                                            administration functionality, including
                                            opening and deleting accounts online, enhanced
                                            tracking and reporting features, and
                                            Lightweight Directory Application Protocol
                                            (LDAP) support, which provides remote enhanced
                                            administrative and control capabilities.
EMAILBOX ENHANCEMENT                        Enhancements such as message search features,
                                            HTML editing and enhanced secure login
                                            interface were added in the second quarter of
                                            1999.

                 FEATURE                                     DESCRIPTION
                 -------                                     -----------
ENHANCED EMAIL SECURITY                     Support for SSL encryption and technologies
                                            with enhanced anti-virus and anti-vandal
                                            security measures. (Anticipated in the fourth
                                            quarter of 2000).

COMMUNITY-BUILDING APPLICATIONS             Additional functionality such as message
                                            boards and list servers, which enable frequent
                                            communication among end users. (Anticipated in
                                            the third quarter of 2000).

EMAIL MESSAGE LANGUAGE TRANSLATION          Email messages will be automatically
                                            translated between languages according to
                                            pre-defined user preferences. Anticipated in
                                            the fourth quarter of 2000).

                 ZZN MEMBER                                     SITE DESCRIPTION
                 ----------                                     ----------------
Access Bollywood (jaan.zzn.com)                Information on Indian films and celebrities.
Baby.com (baby.zzn.com)                        Community site that aggregates parenting
                                               information and sells baby-related products.
Bboy.com (bboy.zzn.com)                        Music-oriented website that aggregates "hip hop"
                                               information.
Citrus Cool Kids (citrus.zzn.com)              Children's portal that offers book reviews, a
                                               newsletter, and information about games and the
                                               Internet.
Diabetes.com (diabetes.zzn.com)                Health-oriented site for diabetes information.
OilLink (oillink.zzn.com)                      Oil industry news site.
Soccer Club (soccerclub.zzn.com)               Website for soccer fans around the world.
The Tom Green Show (tomgreenshow.zzn.com)      Fan club for the MTV talk show host Tom Green.

              NAME                 AGE                         POSITION
              ----                 ---                         --------
Gideon Mantel(1).................   40   Chief Executive Officer and Director
Isabel Maxwell...................   49   President, CommTouch Software, Inc.
Amir Lev.........................   39   Chief Technology Officer, General Manager and
                                         Director
James Collins....................   40   Chief Financial Officer and Secretary
Robert "Rip" Gerber..............   36   Vice President, Marketing, CommTouch Software, Inc.
Avner Amram......................   37   Vice President, Operations, CommTouch Software, Inc.
Yael Elish.......................   31   Vice President, Strategic Development, CommTouch
                                         Software, Inc.
Igor Gusak.......................   45   Vice President and General Manager, Custom Mail
                                         (US), a division of CommTouch Software, Inc.
Yuval Neria......................   40   Vice President, International Sales
Ronen Rosenblatt.................   35   Vice President, Research and Development
Thomas McCullough II.............   40   Vice President and General Manager, Biz To Go, a
                                         division of CommTouch Software, Inc.
Ronni Zahavi.....................   33   Vice President, Human Resources
Allan Barkat(1)(2)...............   39   Chairman of the Board of Directors
Yiftah Atir......................   49   Director
Yair Safrai......................   40   Director
Yoseph Sela(1)(2)................   46   Director
Richard Sorkin...................   37   Director
Thomas Camp......................   36   Director

(2) Member of the Audit Committee

Gideon Mantel is a co-founder of CommTouch and served as its Chief Financial Officer from its inception in February 1991 until October 1995, when he became CommTouch's Chief Operating Officer. In November 1997, he became CommTouch's Chief Executive Officer. He has also served as a director of CommTouch since inception. Mr. Mantel received a B.A. in Political Science and an M.B.A from Tel Aviv University.

Isabel Maxwell has served as the President of CommTouch Software, Inc. since February 1997. Ms. Maxwell was a co-founder, and from March 1993 to August 1996 served as the Senior Vice President of International Business Development, Corporate Affairs and Investor Relations, of The McKinley Group Inc., an Internet search engine company. From August 1996 to October 1996, Ms. Maxwell was an Executive Vice President of Excite, Inc. Ms. Maxwell received a B.A. and M.A. in History and Modern Languages from Oxford University.

Amir Lev is a co-founder of CommTouch and has served as its Chief Technology Officer and as a director since its inception in 1991. Mr. Lev has also been the General Manager of CommTouch since January 1997. Mr. Lev received a B.A. in Computer Science and Economics from Hebrew University, Jerusalem.

James Collins has served as the Chief Financial Officer of CommTouch since March 1999 and as the Secretary of CommTouch since April 1999. From October 1997 to February 1999, Mr. Collins was a private investor. From March 1992 to December 1996, Mr. Collins served as the Chief Financial Officer and Secretary, and from January 1997 to September 1997 as the Vice President of Operations of Pete's Brewing Company, a specialty brewer. Mr. Collins received a B.S. in Business Administration from the University of the Pacific and is a Certified Public Accountant in the State of California.

Robert "Rip" Gerber has served as Vice President, Marketing of CommTouch Software, Inc. since March 1999. Mr. Gerber was the founder of @once, an email direct marketing company, and from February 1998 to February 1999 served as its President. From September 1995 to January 1998, Mr. Gerber served as Managing Director of Pantheon Consulting Group LLC, a marketing and planning services company. From August 1992 to August 1995, Mr. Gerber was a consultant for Deloitte & Touche LLP, a public accounting firm. Mr. Gerber received a B.S. in Chemical Engineering from the University of Virginia and an M.B.A. from Harvard Business School.

Avner Amram has served as Vice President, Operations of CommTouch Software, Inc. since April 1999. Mr. Amram was Director of Operations of CommTouch Software, Inc. from March 1998 to April 1999 and a Software Team Leader from March 1996 to March 1998. Mr. Amram received a B.Sc. in Computer Science from the Technion, Haifa.

Yael Elish has served as the Vice President, Strategic Development of CommTouch Software, Inc. since April 1999. Ms. Elish was CommTouch's Director of Business Development from August 1998 to March 1999 and was CommTouch's Director of Sales from December 1996 to August 1998. From August 1993 to August 1996, Ms. Elish was a Marketing Manager of Widecom Ltd., a provider of Internet integration services and software development. Ms. Elish received a B.A. in International Relations from Hebrew University in Jerusalem.

Igor Gusak has served as the Vice President, Sales of CommTouch Software, Inc. since April 1999. Dr. Gusak was the Director of Sales and Marketing of CommTouch from February 1997 to March 1999 and the Director of Original Equipment Manufacturer Sales for CommTouch from January 1995 to January 1997. Dr. Gusak received a Ph.D. in Mathematics from Urals University, Ekaterinburg, Russia.

Yuval Neria has served as the Vice President, International Sales of CommTouch since April 1999. Mr. Neria was the Director of International Marketing and Sales for CommTouch from March 1997 to April 1999, the Director of Pacific Rim Operations for CommTouch from March 1996 to April 1997, a Product Manager for CommTouch from March 1995 to April 1996, and a Quality Assurance Manager for CommTouch from March 1993 to April 1995. Mr. Neria received a B.A. in Computer Science from the City University of New York.

Ronen Rosenblatt has served as the Vice President, Research and Development of CommTouch since April 1999. Mr. Rosenblatt served as the Director of Research and Development for CommTouch from November 1994 to March 1999. Mr. Rosenblatt received a B.Sc. in Electronics and Computer Engineering from Tel Aviv University.

Tom McCullough joined CommTouch in June 1999 after consulting to various companies, including the San Jose Sharks, on their e-Commerce initiatives from August 1998 to June 1999. From April 1997 to July 1998 Mr. McCullough served as an International Marketing Manager with NEC Systems Laboratory, as Vice President of Sales and Marketing with Network Information Technology from October 1996 to March 1997, and as a Business Development Manager with SunSoft (a Division of Sun Microsystems) from February 1996 to October 1996. Mr. McCullough

received his B.A. in Economics from the University of Southern California and his M.S. in Technology Management from Pepperdine University.

Ronni Zehavi has served as a Vice President Human Resources in CommTouch Software Ltd. since July 1999. From June 1997 to July 1999 Mr. Zehavi was Human Resources and Training Manager at Mondex -- Electronic Cash, a subsidiary of Mastercard International. From January 1994 to June 1997 he was an organizational consultant. Mr. Zehavi received his BA in Educational Psychology and History from Tel-Aviv University, and received his M.A. in Organizational Sociology from Bar-Ilan University.

Yiftah Atir has served as a Director of CommTouch since January 1996. From November 1994 to the present, Mr. Atir has served as Managing Director of Evergreen Venture Capital, a technology focused venture capital fund. Mr. Atir received a B.A. from Haifa University and an M.B.A. from Tel Aviv University.

Allan Barkat has served as a Director of CommTouch since February 1996 and Chairman of the Board of Directors since April 1999. From March 1997 to the present, Mr. Barkat has been a Managing Director of Apax-Leumi Partners, Ltd. the investment advisor to Israel Growth Fund, LP, a technology focused venture capital fund. From January 1995 to March 1997, Mr. Barkat served as an Assistant Director of Apax-Leumi Partners Ltd. From 1992 to 1994, Mr. Barkat served as Vice President of Marketing & Sales of DSP Communications Group, Inc., a wireless semiconductor company. Mr. Barkat has also served as a director of Fundtech Ltd. Mr. Barkat received a B.Sc. from the Technion, Haifa.

Yair Safrai has served as a Director of CommTouch since January 1999. From September 1996 to the present, Mr. Safrai has been the Managing Partner of Concord Ventures, a technology focused venture capital fund. From July 1994 to September 1996, Mr. Safrai served as Vice President of Nitzanim, a venture capital fund. Mr. Safrai received a B.A. in Management and Economics from Tel Aviv University, an M.A. from the University of Pennsylvania, and an M.B.A. from the Wharton Business School, University of Pennsylvania.

Yoseph Sela has served as a Director of CommTouch since February 1996. From January 1993 to the present, Mr. Sela has served as Executive Vice President of Gemini Capital Fund Management, a technology focused venture capital fund. Mr. Sela received a B.Sc. from the Technion, Haifa and an M.B.A. from Tel Aviv University.

Richard Sorkin joined the Board immediately following the closing of the initial public offering. Since June 1998 Mr. Sorkin has served as an advisor to several early-stage Internet companies and is a director of several private companies. From June 1998 to April 1999 he was the Chairman of the Board of Directors of ZIP2, an Internet media company which was sold to Compaq. From May 1996 to June 1998, he was Chief Executive Officer of ZIP2 and from May 1993 to March 1996 he held various executive positions with Creative Technology, Ltd., a leading provider of multi-media hardware. Mr. Sorkin received a B.A. with honors in Economics from Yale University and an M.B.A. from Stanford University.

Thomas Camp joined the Board immediately following the closing of the initial public offering. Since April 1999, Mr. Camp has served as Vice President, Business Development at Go2Net, a network of branded, technology-and community-driven websites. From September 1990 to April 1999, he was an attorney with the law firm of Hutchins, Wheeler & Dittmar, most recently as a stockholder. Mr. Camp received a B.A. from Tufts University, an M.B.A. from Boston College Graduate School of Management and a J.D. from Boston College Law School. Go2Net and Vulcan Ventures entered into an agreement with us in which they purchased the shares offered by this prospectus. Under that agreement, they have the right to name one director to our board, as long as

they continue to hold at least 25% of the combined number of shares being offered under this prospectus and the shares available to Go2Net upon exercise of the warrant which is also being offered by this prospectus. Mr. Camp was appointed to the board pursuant to that agreement.

ELECTION OF DIRECTORS

Directors are elected by shareholders at the annual shareholders meeting and hold office until the next Ordinary General Meeting, which is held at least once in every calendar year, but not more than fifteen months after the last preceding Ordinary General meeting. Directors may be removed and other directors may be elected in their place or to fill vacancies in the Board of Directors at any time by the holders of a majority of the voting power at a general meeting of the shareholders. In the intervals between Ordinary General Meetings, the Board of Directors may appoint new directors temporarily to fill vacancies on the Board of Directors. The Articles of Association of CommTouch authorize nine directors. There are no family relationships among any of the directors, officers or key employees of CommTouch.

ALTERNATE DIRECTORS

The Articles of Association of CommTouch provide that any director may appoint another person to serve as an alternate director and may remove such alternate. Any alternate director possesses all the rights and obligations of the director who appointed him, except that the alternate has no standing at any meeting while the appointing director is present, and the alternate is not entitled to remuneration. Any individual, whether or not a director, may act as an alternate director, and the same person may act as the alternate for several directors and have a corresponding number of votes. Unless the appointing director limits the time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment. The appointment of an alternate director does not in itself diminish the responsibility of the appointing director as a director.

INDEPENDENT DIRECTORS; AUDIT FUNCTION

Under the requirements for quotation on Nasdaq, CommTouch is required to have at least two independent directors on its Board and to establish an audit committee, at least a majority of whose members are independent of management. Messrs. Barkat and Sela, as independent directors, serve as the members of CommTouch's Audit Committee.

Under Israeli law, "public" Israeli companies are required to appoint at least two directors resident in Israel who meet stringent standards of independence. CommTouch believes that this requirement does not currently apply to companies that are publicly traded only outside of Israel. Nevertheless, CommTouch may be required to appoint such independent directors. Moreover, the new Israeli Companies Law, which will become effective on February 1, 2000, unequivocally extends the independent director requirement to Israeli companies that are publicly traded outside of Israel, such as on Nasdaq.

The new Israeli Companies Law also provides that public companies must appoint an audit committee of the Board of Directors, a certified public accountant to audit the company's financial statements and to report any improprieties that the accountant may discover to the Chairman of the Board, and an internal auditor.

OFFICE HOLDERS

Israeli law codifies the duty of care and fiduciary duties that an Office Holder (generally, a director or executive officer) owes to a company. An Office Holder's fiduciary duty includes avoiding any conflict of interest between the Office Holder's position in CommTouch and his personal affairs, avoiding any competition with CommTouch, avoiding exploiting any business opportunity of CommTouch in order to receive personal advantage for himself or others and revealing to CommTouch any information or documents relating to CommTouch's affairs which the Office Holder has received due to his position as an Office Holder.