BACKWEB TECHNOLOGIES LTD, S-1, 2000-03-30

BACKWEB TECHNOLOGIES LTD
S-1, 2000-03-30
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

BACKWEB TECHNOLOGIES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NOT APPLICABLE
(EXACT NAME OF REGISTRANT'S NAME INTO ENGLISH)

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ISRAEL 7372 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

3 ABBA HILLEL STREET
RAMAT GAN, ISRAEL
(972-3) 751-8464
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ELI BARKAT
CHIEF EXECUTIVE OFFICER
BACKWEB TECHNOLOGIES, INC.
2077 GATEWAY PLACE, SUITE 500
SAN JOSE, CALIFORNIA 95110
(408) 933-1700
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

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JEFFREY D. SAPER, ESQ. AARON M. LAMPERT, ESQ.
SELIM DAY, ESQ. GIL BRANDES, ESQ.
WILSON SONSINI NASCHITZ, BRANDES & CO.
GOODRICH & ROSATI 5 TUVAL STREET
PROFESSIONAL CORPORATION 67897 TEL-AVIV
650 PAGE MILL ROAD ISRAEL
PALO ALTO, CALIFORNIA 94304-1050 (972-3) 623-5000
(650) 493-9300
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE FILING FEE
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Ordinary shares, nominal value NIS 0.03 per
share..................................... 1,514,104 shares $37.63 $56,975,734 $15,045
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(1) The price of $37.63 per share, which was the average of the high and low
prices of the Registrant's ordinary shares on the Nasdaq National Market on
March 28, 2000, is set forth solely for the purposes of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.

PROSPECTUS
(SUBJECT TO COMPLETION, DATED MARCH 30, 2000)

1,514,104 SHARES

[BACKWEB LOGO]

BACKWEB TECHNOLOGIES LTD.

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Ordinary Shares

-------------------------

This prospectus relates to the public offering, which is not being
underwritten, of up to 1,514,104 shares of our common stock which is held by
some of our current shareholders.

The prices at which such shareholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.

Our ordinary shares are listed on the Nasdaq National Market under the
symbol "BWEB." On March 28, 2000, the average of the high and low price for our
common stock was $37.63 per share.

-------------------------

Investing in our ordinary shares involves risks. See "Risk Factors"
beginning on page 4.

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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

We have received from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in such
exemption should be construed as authenticating the matters contained in this
prospectus or as an approval of their reliability or adequacy or as an
expression of opinion as to the quality of the securities offered in this
prospectus.

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The date of this prospectus is , 2000.
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TABLE OF CONTENTS

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PAGE
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Prospectus Summary................... 1
Risk Factors......................... 4
Special Note Regarding Forward
Looking Statements................. 12
Use of Proceeds...................... 12
Dividend Policy...................... 12
Capitalization....................... 13
Selected Consolidated Financial
Data............................... 14
Management's Discussion and Analysis
of Financial Condition and Results
Operations......................... 15
Business............................. 25
Selling Shareholders................. 51
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Plan of Distribution................. 54
Description of Share Capital......... 56
Material United States Federal Income
Tax Considerations................. 60
Israeli Taxation and Investment
Programs........................... 64
Conditions in Israel................. 68
Where You Can Find More
Information........................ 70
Legal Matters........................ 71
Experts.............................. 71
ISA Exemption........................ 71
Index to Financial Statements........ F-1
</TABLE>

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully, including the risk factors
beginning on page 4.

BACKWEB TECHNOLOGIES LTD.

We are a leading provider of Internet communication infrastructure software
and application-specific software that enable companies to communicate
business-critical, time-sensitive information throughout their extended
enterprise of customers, partners and employees. Our products provide a reliable
solution for communicating large amounts of data in any digital format by
enabling our customers to automatically gather and disseminate information. Our
products efficiently disseminate this information across a network of any speed
by automatically adapting the rate of transmission to match the available
network capacity, commonly referred to as bandwidth. Our software enables
companies to adapt quickly to changing market conditions through direct
interaction with their customers, partners and employees, thereby accelerating
the execution of their business processes.

Although we have a limited operating history, industry leaders such as
AT&T, Cisco Systems, Goldman Sachs, Pacific Bell, Rite Aid and Schlumberger have
chosen our products to address a variety of their critical business
communication needs. We intend to pursue additional customers in each of these
industries to expand our customer base.

Our infrastructure software, BackWeb Foundation, is a platform that allows
organizations to efficiently gather, target and deliver sizeable digital data of
any format to users' desktops across their extended enterprise. Our software
enables management to capture the immediate attention of targeted recipients and
monitor the recipients' level of interaction with the information delivered. We
work with our customers, partners and third-party software vendors to develop
applications built on top of BackWeb Foundation.

Our infrastructure software platform is powered by three core technologies
that we have developed:

- Polite Communications, a unique technology that enables the transmission
of significant volumes of digital data through existing networks without
interfering with normal network applications and traffic.

- Attention Management, a technology that uses a variety of display
techniques to alert desktop users to the delivery of business-critical
information.

- Closed Loop Delivery, a technology that allows companies to track, manage
and survey the effectiveness of communications throughout their extended
enterprise.

We have also developed two packaged applications, BackWeb Sales Accelerator
and BackWeb Service Accelerator. BackWeb Sales Accelerator enables organizations
to strengthen their customer relationships by accelerating the response times of
the organizations' sales forces and partners to critical market changes. BackWeb
Sales Accelerator provides a geographically dispersed sales organization with
up-to-date information, such as competitive and customer information from
external sources, internal sales and marketing materials, product pricing
information and critical management announcements. BackWeb Service Accelerator
enables a product support organization to stay instantly updated about product
information, service requests, product training information and software
diagnostic tools.

Our ordinary shares are listed on the Nasdaq National Market under the
symbol "BWEB."

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OUR STRATEGY

Our objective is to establish ourselves as the leading provider of Internet
communication infrastructure and applications software. The key elements of our
strategy include:

- becoming the de facto standard for Internet communication infrastructure
software;

- leveraging our infrastructure software platform to introduce multiple
communication applications;

- focusing on selected vertical markets;

- extending our technological leadership position; and

- expanding our direct and indirect distribution channels.

OUR OFFICES

Our principal executive offices are located at 3 Abba Hillel Street, Ramat
Gan, 52136 Israel and our telephone number is 011-972-3-751-8464.

Our U.S. subsidiary, BackWeb Technologies Inc. is located at 2077 Gateway
Place, Suite 500, San Jose, California 95110 and its telephone number is (408)
933-1700.

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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth our consolidated statement of operations
data for the periods presented.

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TWO MONTHS YEAR ENDED
ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------
1995 1996 1997 1998 1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ 71 $ 5,601 $ 9,537 $ 23,263
Gross profit..................................... -- 71 4,623 7,918 19,086
Loss from operations............................. (236) (7,641) (15,094) (14,825) (13,429)
Net loss......................................... (238) (7,684) (14,962) (14,607) (11,489)
Basic and diluted net loss per share............. (6.95) (6.96) (6.07) (0.59)
Shares used in computing basic and diluted net
loss per share................................. 1,106 2,151 2,408 19,575
Pro forma basic and diluted net loss per
share(1)....................................... $ (0.69) $ (0.39)
Shares used in computing pro forma basic and
diluted net loss per share(1).................. 21,208 29,115
</TABLE>

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DECEMBER 31,
1999
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ACTUAL
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 75,607
Working capital............................................. 71,323
Total assets................................................ 86,049
Total shareholders' equity.................................. 73,129
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(1) The pro forma information gives effect to the conversion of all outstanding
shares of our preferred stock into ordinary shares (using the as-if
converted method) from original date of issuance, other than the one share
of Series E preferred stock.

3
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RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in the ordinary shares.

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
AND WE RECENTLY CHANGED OUR STRATEGIC FOCUS

We have a limited operating history and an even more limited history
operating the business as currently conducted. We cannot be certain that our
business strategy will be successful. We were incorporated on August 31, 1995
and did not begin generating revenues until December 1996. In early 1998, we
changed our strategic focus from a consumer-oriented to an enterprise-oriented
Internet communication company. This change required us to adjust our business
processes and make a number of significant personnel changes.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES

We have not achieved profitability and expect to continue to incur net
losses for at least the foreseeable future. We incurred net losses of
approximately $15.0 million for the year ended December 31, 1997, $14.6 million
for the year ended December 31, 1998 and $11.5 million for the year ended
December 31, 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $49.0 million.

We expect to continue to incur significant sales and marketing, product
development and administrative expenses and expect such expenses to increase in
2000. As a result, we will need to generate significant revenues to achieve and
maintain profitability.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY AND
IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR
SHARE PRICE MAY DECREASE SIGNIFICANTLY

Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our ordinary
shares would likely decline. The factors that may cause fluctuations of our
operating results include the following:

- the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle of our products;

- delays we may encounter in introducing new versions of BackWeb
Foundation, BackWeb Sales Accelerator, BackWeb Service Accelerator and
new products and services;

- changes in information systems resource allocation by our customers;

- the mix of products and services sold because our profit margins differ
among products and services; and

- the fixed nature of expenses such as base compensation and rent.

Quarterly revenues and operating results generated by our business
generally depend on license fees from our customers within the quarter. Revenues
from license fees depend upon the volume of end-users. A decrease in end-users
or the cancellation or deferral of any customer contract would reduce our
expected revenues, which could negatively affect our quarterly financial
performance.

Moreover, our sales may be subject to seasonality or cyclicality. We expect
that revenues in the first quarter of each year may be lower than revenues in
the fourth quarter of the preceding year. We believe this trend may occur as a
result of our customers annual budgetary, purchasing and sales cycles. For a
more detailed description of our quarterly results, please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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WE ANTICIPATE INCREASED OPERATING EXPENSES WHICH COULD CAUSE OUR BUSINESS TO
SUFFER IF WE DO NOT CORRESPONDINGLY INCREASE REVENUES

We plan to significantly increase our operating expenses to expand our
sales and marketing operations, broaden our customer support capabilities,
improve operational and financial systems, develop new distribution channels and
fund greater levels of research and development. If we do not significantly
increase our revenues to meet these increased expenses, our business will
suffer.

OUR BUSINESS WILL SUFFER IF OUR TARGET CUSTOMERS DO NOT ACCEPT INTERNET
SOLUTIONS

Our future revenues and profits, if any, depend upon the widespread
acceptance and use of the Internet as an effective medium of business and
communication by our customers. Rapid growth in the use of and interest in the
Internet has occurred only recently. As a result, acceptance and use may not
continue to develop at historical rates, and a sufficiently broad base of
consumers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce and communication. Our success will depend, in
large part, on the acceptance of the Internet in the commercial marketplace and
on the ability of third parties to provide reliable Internet infrastructure
network with the speed, data capacity, security and hardware necessary for
reliable Internet access and services. To the extent that the Internet continues
to experience increased numbers of users, increased frequency of use or
increased bandwidth requirements of users, the Internet infrastructure may not
be able to support the demands placed on it and the performance or reliability
of the Internet could suffer.

OUR BACKWEB FOUNDATION PLATFORM AND APPLICATIONS ARE NEW AND IT IS UNCLEAR IF
THEY WILL ACHIEVE MARKET ACCEPTANCE

We do not know if our products will be successful. The market for Internet
communications solutions is in its infancy, and we are not certain that our
target customers will widely adopt and deploy our technology throughout their
networks. Even if our products are effective, our target customers may not
choose them for technical, cost, support or other reasons.

Our future growth depends on the commercial success of BackWeb Foundation
and applications developed upon BackWeb Foundation, such as BackWeb Sales
Accelerator, introduced in December 1998, BackWeb Service Accelerator,
introduced in August 1999.

OUR SOFTWARE PLATFORM ENABLES THIRD PARTIES TO DEVELOP APPLICATIONS WHICH MAY
COMPETE WITH APPLICATIONS DEVELOPED BY US

Because of BackWeb Foundation's open architecture, third parties have the
ability to develop their own applications on top of our platform. Such third
parties could compete with applications developed by BackWeb. If our target
customers do not widely adopt and purchase our products, or if third parties
were to compete with applications developed by us, our business would suffer.

OUR GROWTH MAY SUFFER BECAUSE OF
THE DIFFICULTIES IN IMPLEMENTING
OUR PRODUCTS

The use of our products by our customers requires implementation services.
Although we currently provide implementation services sufficient to meet our
current business level, our growth will be limited in the event we are unable to
expand our implementation services personnel or subcontract these services to
qualified third parties.

IF WE LOSE A MAJOR CUSTOMER, OUR REVENUES COULD SUFFER BECAUSE OF OUR CUSTOMER
CONCENTRATION

We have generated a substantial portion of our annual and quarterly
historical revenues from a limited number of customers. As a result, if we lose
a major customer, or if there is a decline in end-users in any of our customers'
licenses, our revenues would be adversely affected. In 1997, revenues from two
customers represented 19% and 11%, respectively, of our revenues. In 1998, no
customer accounted for more than 10% of our revenues. In 1999, revenues from one
customer accounted for 13% of our revenues. We expect that a small number of
customers will continue to account for a substantial portion of revenues for the
foreseeable future and revenues from one or more of these custom-

5
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ers may represent more than 10% of our revenues in future years.

OUR LONG AND UNPREDICTABLE SALES CYCLE DEPENDS ON FACTORS OUTSIDE OUR CONTROL
AND MAY CAUSE LICENSE REVENUES TO VARY SIGNIFICANTLY

To date, our customers have taken a long time to evaluate our products
before making their purchase decisions. The long, and often unpredictable, sales
and implementation cycles for our products may cause license revenues and
operating results to vary significantly from period to period. Along with our
distribution partners, we spend a lot of time educating and providing
information to our prospective customers regarding the use and benefits of our
products. In addition, our customers often begin by purchasing our products on a
pilot basis before they decide whether or not to purchase additional licenses
for full deployment. Even after purchase, our customers tend to deploy BackWeb
Foundation slowly, depending upon:

- the skill set of the customer;

- the size of the deployment;

- the complexity of the customer's network environment; and

- the quantity of hardware and the degree of hardware configuration
necessary to deploy our products.

COMPETITION IN THE INTERNET COMMUNICATIONS MARKET MAY REDUCE THE DEMAND FOR, OR
PRICES OF, OUR PRODUCTS

The Internet communications market is intensely competitive and rapidly
changing. We expect that competition will intensify in the near-term because of
the attention the Internet is currently receiving and because there are very
limited barriers to entry. Our primary long-term competitors may not have
entered the market yet because the Internet communications market is new.
Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer. We may not be able to compete successfully, and competitive pressures
may harm our business.

Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. Some of our potential competitors are among the
largest and most well-capitalized software companies in the world. For
additional discussion of our competition, please see "Business -- Competition."

FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR GROWTH

If we fail to substantially expand our direct and indirect sales and
marketing operations in our existing markets, our growth will be limited. We
have recently expanded our direct sales force in North America and Europe and
plan to hire additional sales personnel to meet market demand. Currently, we
believe we will need to significantly expand our sales and marketing
organization. We might not be able to hire or retain the kind and number of
sales and marketing personnel we are targeting because competition for qualified
sales and marketing personnel in the Internet communications market is intense.

FAILURE TO DEVELOP KEY STRATEGIC
RELATIONSHIPS COULD LIMIT OUR GROWTH

We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain strategic relationships with key
independent software vendors, or ISVs, resellers, systems integrators,
distribution partners and customers. If we fail to develop these strategic
partnerships, our growth could be limited.

WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR EXPECTED GROWTH

Our ability to successfully offer products and services and to implement
our business plan in the rapidly evolving Internet communications market
requires an effective planning and management process. We continue to increase
the scope of our operations domestically and internationally and expect to grow
our headcount substantially depending on market conditions.
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These factors have placed, and our anticipated future operations will
continue to place, a significant strain on our management systems and resources.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and expand, train and manage our
work force worldwide. Furthermore, we expect that we will be required to manage
multiple relationships with various customers and other third parties.

THE GLOBAL NATURE OF OUR OPERATIONS
STRAINS OUR MANAGEMENT RESOURCES

If we fail to manage our geographically dispersed organization, we may fail
to meet or exceed our business plan and our revenues may decline. Our research
and development facilities are located in Canada and Israel, and our directors,
executive officers and other key employees are similarly dispersed throughout
the world. In addition, we maintain offices in the United States, Canada, Japan
and Europe to market and sell our products in those countries and surrounding
regions. This geographic dispersion requires significant management resources
that our locally-based competitors do not need to devote to their operations. In
addition, the expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources.

OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED

Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
patent, copyright, trade secret and trademark law. However, we may not be able
to adequately protect our proprietary rights which may harm our business.
Unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult,
and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
For a more detailed description of the protection of our intellectual property,
please see "Business -- Intellectual Property and Proprietary Rights."

OUR PRODUCTS MAY BE USED IN AN
UNINTENDED AND NEGATIVE MANNER

Our products are used to transmit information through the Internet. Our
products could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data, or computer
viruses to end-users in the course of delivery. Any such transmission could
damage our reputation or could give rise to legal claims against us. We could
spend a significant amount of time and money defending against these legal
claims.

OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS

Substantial litigation regarding intellectual property rights exists in the
software industry. A successful claim of product infringement against us and our
failure or inability to license the infringed or similar technology could harm
our business. We expect that software products may be increasingly subject to
third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement against us with respect
to our products and technology. Any claims, with or without merit, could:

- be time-consuming to defend;

- result in costly litigation;

- divert management's attention and resources;

- cause product shipment delays; or

- require us to enter into royalty or licensing agreements.

Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. For additional information, please see
"Business -- Intellectual Property and Proprietary Rights."
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WE DO NOT HAVE SUFFICIENT INSURANCE TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS

Our products are integrated into our customers' networks. The sale and
support of our products may entail the risk of product liability or warranty
claims based on damage to these networks. In addition, the failure of our
products to perform to customer expectations could give rise to warranty claims.
Although we carry general liability insurance, our insurance would likely not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.

RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR PRODUCTS TO BECOME OBSOLETE OR
REQUIRE US TO REDESIGN OUR PRODUCTS

The Internet communications market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. If we are unable to develop and introduce products
or enhancements in a timely manner to meet these technological changes, we may
not be able to successfully compete. In addition, our products may become
obsolete in which event we may not be a viable business.

OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF KEY PERSONNEL

We will need to hire a significant number of additional sales, support,
marketing, and research and development personnel in calendar 2000 and beyond to
increase our revenues. If we fail to attract qualified personnel or retain
current employees, our revenues may not increase and could decline.

Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the
future. Our future success also depends upon the continued service of our
executive officers and other key sales, marketing and support personnel. In
addition, our products and technologies are complex and we are substantially
dependent upon the continued service of our existing engineering personnel, and
especially our founders. None of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. Moreover, we do not have "key person"
life insurance policies covering any of our employees.

ANY MAJOR DEVELOPMENTS IN THE POLITICAL OR ECONOMIC CONDITIONS IN ISRAEL COULD
CAUSE OUR BUSINESS TO SUFFER BECAUSE WE ARE INCORPORATED IN ISRAEL AND HAVE
IMPORTANT FACILITIES AND RESOURCES LOCATED IN ISRAEL

We are incorporated under the laws of the State of Israel. Our principal
research and development facilities as well as significant executive offices are
located in Israel. Any major hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could
significantly harm our business. Since its establishment in 1948, the State of
Israel has been and continues to be in a state of hostility with its neighbors,
varying from time to time in intensity and degree.

Some of our senior officers and key employees are currently obligated to
perform annual reserve duty in the Israel Defense Forces and are subject to
being called for active military duty at any time. Fulfillment of these
obligations may deprive us of key employees for extended periods of time.

Inflation in Israel and devaluation of the NIS against the U.S. dollar,
could have an impact on our financial results. Although Israel has substantially
reduced the rates of inflation and devaluation in recent years, they are still
relatively high compared to those in the United States and we could be harmed by
inflation or devaluation. If inflation rates in Israel increase again and hurt
Israel's economy as a whole, our operations and financial condition could
suffer. For a more detailed discussion of the political, military and economic
environment in Israel, please see "Conditions in Israel."

ANY FUTURE PROFITABILITY MAY BE DIMINISHED IF TAX BENEFITS FROM THE STATE OF
ISRAEL ARE REDUCED OR WITHHELD

Pursuant to the Law for the Encouragement of Capital Investments, the
Israeli gov-
8
<PAGE> 12

ernment has granted "Approved Enterprise" status to our existing capital
investment programs. Consequently, we are eligible for tax benefits for the
first several years in which we generate taxable income. Our future
profitability may be diminished if all or a portion of these tax benefits are
reduced. These tax benefits may be cancelled in the event of changes in Israeli
government policies or if we fail to comply with requisite conditions and
criteria. Currently the most significant conditions which we must continue to
meet include making specified investments in fixed assets, maintaining the
development and production nature of our facilities, and financing of at least
30% of these investments through the issuance of capital stock. For a more
detailed discussion of Israeli tax laws, please see "Israeli Taxation and
Investment Programs."

OUR GROWTH MAY BE LIMITED IF WE DO NOT DEVELOP LOCALIZED VERSIONS OF OUR
PRODUCTS

Historically, most of our sales have been in the United States. In order to
expand internationally, we need to develop localized versions of our products.
If we fail to develop these localized versions, our growth prospects would be
limited. We currently have limited experience in developing localized versions
of our products and marketing and distributing our products internationally.

EXCHANGE RATE FLUCTUATIONS BETWEEN THE
U.S. DOLLAR AND THE NIS MAY NEGATIVELY AFFECT OUR EARNINGS

Although most of our revenues and a majority of our expenses are
denominated in U.S. dollars, a significant portion of our research and
development expenses are incurred in NIS. In addition, we are engaged in certain
loan transactions with affiliates denominated in and dependent on NIS. As a
result, we may be negatively affected by fluctuations in the exchange rate
between the U.S. dollar and the NIS.

THE LOSS OF OUR RIGHT TO USE SOFTWARE
LICENSED TO US BY THIRD PARTIES COULD HARM OUR BUSINESS

We license technology that is incorporated into our products from third
parties, including security and encryption software. Any interruption in the
supply or support of any licensed software could disrupt our operations and
delay our sales, unless and until we can replace the functionality provided by
this licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis and respond to emerging industry standards
and other technological changes.

OUR BUSINESS WILL SUFFER IF OUR TARGET CUSTOMERS DO NOT ACCEPT INTERNET
SOLUTIONS

Our success will depend, in large part, on the acceptance of the Internet
in the commercial marketplace and on the ability of third parties to provide a
reliable Internet infrastructure network with the speed, data capacity, security
and hardware necessary for reliable Internet access and services. To the extent
that the Internet continues to experience increased numbers of users, increased
frequency of use or increased bandwidth requirements of users, the Internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the Internet could suffer.

WE MAY OFFER TO REPURCHASE SOME OF OUR PREVIOUSLY GRANTED OPTIONS AND ISSUED
SHARES AND MAY BE SUBJECT TO PENALTIES UNDER CALIFORNIA SECURITIES LAWS

We may commence a rescission offer pursuant to the state securities laws of
the State of California because we failed to

9
<PAGE> 13

qualify or receive an exemption from qualification under California state
securities laws when we granted options to some of our employees in the State of
California. The rescission offer would cover options to purchase ordinary shares
issued pursuant to our 1996 U.S. Stock Option Plan and ordinary shares issued
upon exercise of these options which were granted to approximately 42 people in
California from 1996 to 1998. The rescission offer would allow these people to
return their equity interests in us in exchange for at least twenty percent of
the exercise price per underlying share for each outstanding option they hold
and the price per share paid by each of these people plus seven percent interest
for each share issued upon exercise of these options. If the rescission offer is
consummated, BackWeb could be required to make an aggregate payment in an amount
which we believe is not material to us and which we currently believe will be no
more than $400,000. As a legal matter, it remains uncertain whether we have any
liability under California state securities laws since publicly traded companies
are exempt from such filings. In addition, we are not aware of any claims for
rescission against us at the time of this prospectus. Upon completing a
rescission offer approved by the California Department of Corporations the
aforementioned optionees should not have any rescission rights under California
law. We may still be subject to penalties or fines related to these issuances.

ISRAELI REGULATIONS MAY LIMIT OUR ABILITY TO ENGAGE IN RESEARCH AND DEVELOPMENT
AND EXPORT OUR PRODUCTS

Under Israeli law we are required to obtain an Israeli government license
to engage in research and development of and export of the encryption technology
incorporated in our products. Our current government license to engage in these
activities expires April 4, 2000. Our research and development activities in
Israel and our ability to export our products out of Israel would be limited if:

- the Israeli government revokes our current license;

- our current license is not renewed;

- our license fails to cover the scope of the technology in our products;
or

- Israeli law regarding research and development or export of encryption
technologies were to change.

WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT

Our share price has been volatile and we expect to experience continued
volatility due to a number of factors, including:

- announcements of technological innovations;

- announcements relating to strategic relationships;

- conditions affecting the Internet industry; and

- trends related to the fluctuations of stock prices of Israeli companies.

The market for technology and Internet-related companies has experienced
extreme volatility that often has been unrelated to the operating performance of
particular companies. These fluctuations may adversely affect the trading price
of our ordinary shares, regardless of our actual operating performance.

ISRAELI COURTS MIGHT NOT ENFORCE JUDGMENTS RENDERED OUTSIDE OF ISRAEL WHICH MAY
MAKE IT DIFFICULT TO COLLECT ON JUDGMENTS RENDERED AGAINST US

We are incorporated in Israel. Some of our directors and executive officers
and the Israeli experts named herein are not residents of the United States and
some of their assets and our assets are located outside the United States.
Service of process upon our non-U.S. resident directors and executive officers
or the Israeli experts named herein and enforcement of judgments obtained in the
United States against us, and our directors and executive officers, or the
Israeli experts named herein, may be difficult to obtain within the United
States. BackWeb Technologies Inc., our U.S. subsidiary, is the U.S. agent
authorized to receive service of process in any action against us in any federal
or state

10
<PAGE> 14

court arising out of this offering or any related purchase or sale of
securities. We have not given consent for this agent to accept service of
process in connection with any other claim.

We have been informed by our legal counsel in Israel, Naschitz, Brandes &
Co., that there is doubt as to the enforceability of civil liabilities under
U.S. securities laws in original actions instituted in Israel. However, subject
to certain time limitations, an Israeli court may declare a foreign civil
judgment enforceable if it finds that:

- the judgment was rendered by a court which was, according to the laws of
the state of the court, competent to render the judgment;

- the judgment is no longer appealable;

- the obligation imposed by the judgment is enforceable according to the
rules relating to the enforceability of judgments in Israel and the
substance of the judgment is not contrary to public policy; and

- the judgment is executory in the state in which it was given.

Even if the above conditions are satisfied, an Israeli court will not
enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional
cases) or if its enforcement is likely to prejudice the sovereignty or security
of the State of Israel. An Israeli court also will not declare a foreign
judgment enforceable if:

- the judgment was obtained by fraud;

- there was no due process;

- the judgment was rendered by a court not competent to render it according
to the laws of private international law in Israel;

- the judgment is at variance with another judgment that was given in the
same matter between the same parties and which is still valid; or

- at the time the action was brought in the foreign court a suit in the
same matter and between the same parties was pending before a court or
tribunal in Israel.

OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF
BACKWEB AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS

Our executive officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 23% of our outstanding ordinary
shares. These shareholders, if acting together, would be able to significantly
influence all matters requiring approval by our shareholders, including the
election of directors and the approval of mergers or other business combination
transactions.

WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF BACKWEB, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS

Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
a merger or other acquisition of BackWeb, even if an acquisition would be
beneficial to our shareholders.

Israeli corporate law regulates acquisitions of shares through tender
offers, requires special approvals for transactions involving significant
shareholders and regulates other matters that may be relevant to these types of
transactions. Furthermore, Israel tax considerations may make potential
transactions unappealing to us or to some of our shareholders. In addition, our
charter documents provide for a staggered board of directors. For further
discussion, please see "Description of Share Capital."

THE NEW ISRAELI COMPANIES LAW MAY CAUSE UNCERTAINTIES REGARDING CORPORATE
GOVERNANCE

The new Israeli Companies Law, which became effective on February 1, 2000,
has brought about significant changes to Israeli corporate law. Under this new
law, there may be uncertainties regarding corporate governance in some areas.
These uncertainties will persist until this new law has been adequately
interpreted, and these uncertainties could inhibit takeover attempts or other
transactions and inhibit other corporate decisions.

11
<PAGE> 15

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

We have made forward looking statements in this prospectus that are subject
to risks and uncertainties. Forward looking statements include information
concerning possible or assumed future results of operations of BackWeb. Also,
when we use such words as "believes," "expects," "anticipates" or similar
expressions, we are making forward looking statements. You should note that an
investment in our securities involves risks and uncertainties that could affect
future financial results. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.

USE OF PROCEEDS

BackWeb will not receive any of the proceeds from the sale of the shares
offered by prospectus. All proceeds from the sale of the shares offered by this
prospectus will be for the account of the selling shareholders, as described
below. See "Selling Shareholders" and "Plan of Distribution."

DIVIDEND POLICY

We have never declared or paid any cash dividends on our share capital. We
currently intend to retain all future earnings, if any, for use in the operation
and expansion of our business and do not anticipate declaring or paying cash
dividends.

12
<PAGE> 16

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on an actual basis;

- on a pro forma basis giving effect to the conversion of all outstanding
shares of the Series E preferred stock as of December 31, 1999 into
1,426,259 ordinary shares.

You should read this information together with BackWeb's consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
ACTUAL PRO FORMA
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Series E preferred stock: nominal value approximately
$0.003 per share at amount paid in; 1 share authorized
and outstanding actual, no shares outstanding pro
forma(1)................................................ 3,454 --
Preferred stock, nominal value approximately $0.01 per
share; 50,000,000 shares authorized and no shares
outstanding actual and pro forma........................ -- --
Ordinary shares: nominal value approximately $0.01 per
share at amount paid in; 150,067,829 shares authorized,
35,153,402 shares outstanding actual; and 150,067,829
shares authorized and 36,579,661 shares outstanding pro
forma................................................... 124,301 127,755
Notes receivable from shareholders........................ (3,316) (3,316)
Deferred stock compensation............................... (2,104) (2,104)
Accumulated other comprehensive loss...................... (226) (226)
Accumulated deficit....................................... (48,980) (48,980)
-------- --------
Total shareholders' equity (net capital deficiency)... 73,129 73,129
-------- --------
Total capitalization............................... $ 73,129 $ 73,129
======== ========
</TABLE>

- ---------------
(1) In connection with our acquisition of Lanacom, we issued to the Lanacom
selling shareholders 8,532,909 exchangeable shares of BackWeb Canada, Inc.,
a wholly owned subsidiary of BackWeb, and one share of our Series E
Preferred Stock. The exchangeable shares of BackWeb Canada, Inc. are
exchangeable for an aggregate of 1,426,259 ordinary shares.

13
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data set forth below for
the three years in the periods ended December 31, 1999 and the selected
consolidated balance sheet data as of December 31, 1998 and 1999 have been
derived from our audited consolidated financial statements included elsewhere in
this prospectus. The selected consolidated statement of operations data for the
two months ended December 31, 1995 and the year ended December 31, 1996 and the
selected consolidated balance sheet data as of December 31, 1995, 1996 and 1997
have been derived from our audited consolidated financial statements not
included in this prospectus. Our historical results are not necessarily
indicative of results to be expected for any future period. The data has been
derived from financial statements that have been prepared in accordance with
U.S. GAAP and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
TWO MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------
1995 1996 1997 1998 1999
------------ ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License............................................... $ -- $ 71 $ 5,311 $ 7,980 $ 18,514
Service............................................... -- -- 290 1,557 4,749
------- ------- -------- -------- --------
Total revenues.................................. -- 71 5,601 9,537 23,263
Cost of revenues:
License............................................... -- -- 182 266 266
Service............................................... -- -- 796 1,353 3,911
------- ------- -------- -------- --------
Total cost of revenues.......................... -- -- 978 1,619 4,177
Gross profit............................................ -- 71 4,623 7,918 19,086
Operating expenses:
Research and development.............................. 120 1,781 3,955 4,555 5,519
Sales and marketing................................... -- 4,535 12,224 13,182 18,876
General and administrative............................ 116 1,396 2,981 3,182 4,480
Amortization of goodwill, other intangibles, and
deferred stock compensation......................... -- -- 557 1,824 3,640
------- ------- -------- -------- --------
Total operating expenses........................ 236 7,712 19,717 22,743 32,515
------- ------- -------- -------- --------
Loss from operations.................................... (236) (7,641) (15,094) (14,825) (13,429)
Other income, net....................................... (2) (43) 132 218 1,940
------- ------- -------- -------- --------
Net loss................................................ $ (238) $(7,684) $(14,962) $(14,607) (11,489)
======= ======= ======== ======== ========
Basic and diluted net loss per share.................... $ (6.95) $ (6.96) $ (6.07) (0.59)
======= ======== ======== ========
Shares used in computing basic and diluted net loss per
share(1).............................................. 1,106 2,151 2,408 19,575
======= ======== ======== ========
Pro forma basic and diluted net loss per share(2)....... $ (0.69) $ (0.39)
======== ========
Shares used in computing pro forma basic and diluted net
loss per share(1)(2).................................. 21,208 29,115
======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ -- $12,068 $ 6,377 $ 6,449 $ 75,607
Working capital (deficit)................................. (36) 9,707 3,024 1,596 71,323
Total assets.............................................. 14 12,784 15,097 12,701 86,049
Long-term obligations, net of current portion............. 211 1,278 1,156 327 --
Redeemable convertible preferred stock.................... -- 16,337 25,532 37,304 --
Total shareholders' equity (net capital deficiency)....... (238) (7,407) (18,915) (33,178) 73,129
</TABLE>

- -------------------------
(1) For an explanation of the number of shares used in per share computation,
see Note 1 of Notes to Consolidated Financial Statements. Loss per share for
1995 is not presented as it is not meaningful.

(2) The pro forma information gives effect to the conversion of all outstanding
shares of our preferred stock into ordinary shares (using the as-if
converted method) from original date of issuance, other than the one share
of Series E Preferred Stock.

14
<PAGE> 18

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

Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this prospectus.

OVERVIEW

We were incorporated on August 31, 1995 and commenced our operations in
November 1995. During the period from commencement of operations through
December 31, 1996, we were in a development stage and had insignificant
revenues. Operating activities during this period related primarily to
developing our products, building our corporate infrastructure and raising
capital. In December 1996, we shipped the first commercial version of our
software.

In August 1997, in an effort to expand the features and functionalities of
our product offerings, we acquired all the outstanding shares of Lanacom Inc., a
Canadian corporation. The acquisition has been accounted for using the purchase
method of accounting, and accordingly the purchase price has been allocated to
the tangible and intangible assets acquired and the liabilities assumed on the
basis of their respective fair value on the acquisition date. The purchase price
of $3.9 million was determined based on the value of shares originally issued
and options granted. Of the total purchase price, approximately $3.2 million was
allocated to goodwill, representing the excess of the aggregate purchase price
on the fair value of tangible and intangible assets. The remainder of the
purchase price was allocated to net tangible liabilities assumed ($103,000),
developed technology ($400,000) and other identifiable intangible assets
($383,000). Goodwill, developed technology and other identified intangibles are
amortized on a straight-line basis over the estimated useful life which range
from 24 to 30 months. The first BackWeb product, Version 4.0, incorporating
Lanacom's Headliner product, was released in January 1998.

In early 1998, we engaged in a comprehensive re-examination of our business
strategy and changed our strategic focus from a consumer-oriented to an
enterprise-oriented Internet communication company. In connection with this
change in strategy, we undertook a fundamental repositioning and reorganization
of our work force, particularly in our sales organization. During 1998, we
continued to enhance our infrastructure software, BackWeb Foundation Version
5.0, and in December 1998 released our first packaged application, BackWeb Sales
Accelerator. In August 1999, we released an additional packaged application,
BackWeb Service Accelerator.

Since our inception, revenues have been derived primarily from the
licensing of our products and to a lesser extent from maintenance and support,
consulting and training services. The rate of growth of our service revenues is
not commensurate with the costs of service revenues such as salaries and related
expenses of our customer support and consulting organizations and cost of third
party contractors to provide consulting services. Accordingly, our gross margins
on service revenues are significantly lower than our gross margins on license
revenues. Our products are marketed worldwide through a combination of a direct
salesforce, resellers and system integrators.

We recognize software license revenue in accordance with Statement of
Position 97-2, or SOP 97-2, "Software Revenue Recognition," as amended by
Statement of Position 98-4, or SOP 98-4. These statements are
15
<PAGE> 19

effective for our transactions entered into after January 1, 1998. The
application of SOP 97-2 has not had a material impact on our results of
operations. License revenues are comprised of perpetual or multi-year license
fees that are primarily derived from contracts with corporate customers and
resellers and royalty fees earned upon shipment of products which incorporate
our software. We generally recognize license revenues when a license agreement
has been executed or a definitive purchase order has been received and the
product has been delivered to end-user customers, no significant obligations
with regard to implementation remain, the fee is fixed and determinable, and
collectibility is probable. Revenues on contracts with resellers are not
recognized until software is sold through to the end-user. Royalty revenues are
recognized when reported to us after shipment of the related products.

Service revenues are primarily comprised of revenues from standard support
and maintenance agreements, consulting and training fees. Customers licensing
our products generally purchase the standard annual maintenance agreement.
Revenues from maintenance agreements are recognized on a straight-line basis
over the life of the agreement. Consulting services are billed at an agreed upon
rate plus out-of-pocket expenses and training services on a per session basis.
We recognize service revenues from consulting and training when provided to the
customer.

We have expended significant sums since inception on product development
and enhancement of sales and marketing capabilities, and expect that these
expenditures will continue to increase as we pursue the emerging opportunities
in our markets.

The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israel Shekel, or NIS. The results of our operations are subject to fluctuations
in the dollar-NIS exchange rate which is influenced by various global economic
factors including inflation in Israel.

16
<PAGE> 20

REVENUES

Our revenues are derived primarily from licensing of BackWeb Foundation and
BackWeb Sales Accelerator and to a lesser extent from maintenance and support,
consulting and training services. Total revenues for the year ended December 31,
1999 was $23.3 million, an increase of approximately $13.8 million or 144% from
$9.5 million in the year ended December 31, 1998. Total revenues increased
approximately $3.9 million or 70% during 1998 compared to 1997. The increases
were due both to growth in license and service revenues. Customers outside of
the United States accounted for 29.0% of revenues in the year ended December 31,
1999 compared to 20.6% and 11.1% of revenues in the years ended December 31,
1998 and 1997.

License revenues were $18.5 million or 79.6% of revenues in the year ended
December 31, 1999 compared to $8.0 million or 83.7% and $5.3 million or 94.8% of
revenues in the year ended December 31, 1998 and 1997. The decreases in license
revenue as a percentage of total revenue were primarily due to increased service
revenue from support, maintenance and consulting services. Service revenues were
$4.7 million or 20.4% of revenues in the year ended December 31, 1999 compared
to $1.6 million or 16.3% and $0.3 million or 5.2% of revenues in the years ended
December 31, 1998 and 1997. In 2000, we expect our service revenues to increase
on an absolute basis and as a percentage of net revenues.

COST OF REVENUES

Cost of revenues was $4.2 million or 18.0% of revenues for the year ended
December 31, 1999 compared to $1.6 million or 17% and $1.0 million or 17.5% of
revenues for the years ended December 31, 1998 and 1997. The increases in cost
of revenues on an absolute basis were primarily due to growth of our service
organization in 1999 and 1998.

Cost of license revenues consists primarily of expenses related to media
duplication, and packaging of our products and amortization of capitalized
developed technology. Cost of license revenues was $266,000 or 1.1% of revenues
for the year ended December 31, 1999 compared to $266,000 or 2.8% of revenues
for the year ended December 31, 1998.

Cost of service revenues consists primarily of expenses related to salaries
and expenses of our customer support and professional service organizations,
including related expenses of our consultants and costs of third party
consultants. Cost of service revenues was $3.9 million, or 16.8% of revenues, in
the year ended December 31, 1999 compared to $1.4 million or 14.2% of revenues,
in the year ended December 31, 1998. The increase in cost of service revenues
was due to growth of the service organization during 1998 and 1999.

We expect the cost of service revenues to increase primarily as a result of
the increase in our service revenues in addition to the continued expansion of
our customer support and professional services organization.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel, equipment and supply costs for our development efforts.
These expenses are charged to operations as incurred. We have research and
development offices in Israel and Canada. Research and development expenses were
$5.5 million in the year ended December 31, 1999 compared to $4.6 million and
$4.0 million in the years ended December 31, 1998 and 1997.

We believe significant investment in research and development is essential
to our future success and expect that research and development expenses will
increase on an absolute basis but decrease as a percentage of revenues in future
periods.

SALES AND MARKETING. Sales and marketing expenses consist of personnel and
related costs for our direct sales force and marketing employees, and marketing
programs, including trade shows, advertising, collateral, sales materials,
seminars and public relations. We have sales personnel in offices located in the

17
<PAGE> 21

United States, Canada, Europe and Japan. Sales and marketing expenses were $18.9
million in the year ended December 31, 1999 compared to $13.2 million and $12.2
million in the years ended December 31, 1998 and 1997.

We expect that sales and marketing expenses will increase on an absolute
basis over the next year, as we hire additional sales and marketing personnel,
continue to promote our brand and establish sales offices in additional domestic
and international locations, but are expected to decrease as a percentage of
revenues.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, general management, human resources, information
services and legal. General and administrative expenses were $4.5 million in the
year ended December 31, 1999 compared to $3.2 million and $3.0 million in the
years ended December 31, 1998 and 1997. We expect general and administrative
expenses to increase on an absolute basis in future periods but continue to
decrease as a percentage of revenues.

AMORTIZATION OF GOODWILL, OTHER INTANGIBLES AND DEFERRED STOCK COMPENSATION.

Amortization of goodwill, other intangibles and deferred stock compensation
consists of amortization of goodwill and other intangibles associated with our
acquisition of Lanacom in August 1997 and deferred stock compensation for 1999.
Deferred stock compensation represents the aggregate differences between the
respective exercise price of options at their dates of grant and the deemed fair
market value or our ordinary shares for accounting purposes. Goodwill and other
intangibles are being amortized on a straight line basis over the estimated
useful life, generally two to two and one-half years. Deferred stock
compensation is presented as a reduction of shareholders' equity and is
amortized over the vesting period of the underlying options based on an
accelerated vesting method. Amortization expense was $3.6 million in the year
ended December 31, 1999 compared to $1.8 million and $0.6 million in the years
ended December 31, 1998 and 1997.

OTHER INCOME (EXPENSE), NET

Other income and expenses (net) includes interest income earned on our cash
and cash equivalents and short term investments, offset by interest expense. In
addition, the amortization of fair value of warrants issued in connection with
borrowings from financial institutions is also charged to other income and
expense. Other income and expense also includes the effects of exchange gains
and losses arising from the re-measurement of transactions in foreign currency.
For the year ended December 31, 1999, other income was $1.9 million compared to
$218,000 and $132,000 in the years ended December 31, 1998 and 1997. The
increase in other income was due to interest income generated from the proceeds
of our initial public offering.

INCOME TAXES

As of December 31, 1999, we had approximately $32.3 million of Israeli net
operating loss carryforwards and $1.5 million of U.S. federal net operating loss
carryforwards and of $14.2 million of other foreign net losses carryforwards for
tax reporting purposes available to offset future taxable income. The U.S. net
operating loss carryforwards expire in various amounts between the years 2011
and 2019. The Israeli net operating loss carryforwards have no expiration date.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1999, we had cash, cash equivalents and short-term
investments of $75.6 million. In the year ended December 31, 1999, cash used in
operations was $5.3 million primarily associated with development activities and
marketing efforts related to commercialization of our products.

We have made investments in hardware, software, and furniture and fixtures.
Expenditures on property and equipment were approximately $1.4 million in the
year ended December 31, 1999.

18
<PAGE> 22

On June 8, 1999, we sold 5,500,000 ordinary shares in an underwritten
public offering and on June 9, 1999, sold an additional 825,000 shares through
the exercise of the underwriters' over-allotment option for net proceeds of
approximately $67.9 million.

Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to devote
substantial capital resources to hire and expand our sales, support, marketing
and product development organizations, to expand marketing programs, to
establish additional facilities worldwide and for other general corporate
activities. We believe that our current cash balances along with the proceeds
raised from our initial public offering will be sufficient to fund our
operations for at least the next 24 months.

As of December 31, 1999, the Company had $5.0 million in an unused
available line-of-credit facility.

EFFECTIVE CORPORATE TAX RATES

Our tax rate will reflect a mix of the U.S. statutory tax rate on our U.S.
income and the Israeli tax rate discussed below. We expect that most of our
taxable income will be generated in Israel. Israeli companies are generally
subject to income tax at the rate of 36% of taxable income. The majority of our
income, however, is derived from our company's capital investment program with
"Approved Enterprise" status under the Law for the Encouragement of Capital
Investments, and is eligible therefore for tax benefits. Pursuant to these
benefits, we will enjoy a tax exemption on income derived during the first two
years in which this investment program produces taxable income, provided that we
do not distribute such income as a dividend, and a reduced tax rate of 15-25%
for the next 5 to 8 years. All of these tax benefits are subject to various
conditions and restrictions. See "Israeli Taxation and Investment Programs-Law
for the Encouragement of Capital Investments, 1959." There can be no assurance
that we will obtain approval for additional Approved Enterprises Programs, or
that the provisions of the law will not change.

Since we have incurred tax losses through December 31, 1999, we have not
yet used the tax benefits for which we are eligible. See "Risk Factors."

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

Most of our sales are in U.S. dollars. However, a large portion of our
costs relate to our operations in Israel. A substantial portion of our operating
costs, primarily our research and development costs are denominated in NIS.
Costs not effectively denominated in U.S. dollars are translated to U.S.
dollars, when recorded, at prevailing exchange rates for the purposes of our
financial statements, and will increase if the rate of inflation in Israel
exceeds the devaluation of the Israeli currency as compared to the U.S. dollar
or if the timing of such devaluations were to lag considerably behind inflation.
Consequently, we are and will be affected by changes in the prevailing NIS/U.S.
dollar exchange rate. We might also be affected by the U.S. dollar exchange rate
to the major European and Asian currencies due to the fact that we operate
offices throughout Europe and Asia.

The annual rate of inflation in Israel was 1.3% in 1999, 8.6% in 1998 and
7.0% in 1997. The NIS was devalued against the U.S. dollar by approximately 5.9%
in 1999, 17.6% in 1998 and 8.8% in 1997.

The representative U.S. dollar exchange rate for converting the NIS to U.S.
dollars, as reported by the Bank of Israel, was NIS 4.153 for one U.S. dollar on
December 31, 1999.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

We develop products in Israel and sell them in North America, Asia and
Europe. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As most of our sales are currently made in U.S. dollars, a

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strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Backweb regularly assesses these risks and has
established policies and business practices to protect against the adverse
effects of these and other potential exposures. As a result, the Company does
not anticipate material losses in these areas. Due to the nature of our
short-term investments, we have concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). We are required to adopt SFAS
133 for the year ending December 31, 2000. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities. Since we
currently hold no derivative financial instruments as defined by SFAS 133 and do
not currently engage in hedging activities, adoption of SFAS 133 is expected to
have no material effect on our financial condition or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", or
SAB 101. SAB 101 summarizes certain of the SEC Staff's views in applying general
accepted accounting principles to revenue recognition in financial statements.
We are currently evaluating the impact of SAB 101. Should we determine that a
change in our accounting policy is necessary, such a change will be made
effective January 1, 2000 and would result in a charge to results of operations
for the cumulative effect of the change. This amount, if recognized, would be
recorded as deferred revenue and recognized as revenue in future periods.
Financial statements for prior periods would not be restated.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. The adoption of this
amendment was expected to have no material impact on our financial condition and
the results of operations.

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BUSINESS

BACKWEB TECHNOLOGIES LTD.

BackWeb is a leading provider of Internet communication infrastructure
software and application-specific software that enables companies to communicate
business-critical, time-sensitive information throughout their extended
enterprise of customers, partners and employees. Our products provide a reliable
solution for communicating large amounts of data in any digital format by
enabling our customers to automatically gather and disseminate information. Our
products efficiently disseminate this information across a network of any speed
by automatically adapting the rate of transmission to match available bandwidth.

Our infrastructure software, BackWeb Foundation, is a platform that allows
organizations to efficiently gather, target and deliver sizeable digital data of
any format to users' desktops throughout the extended enterprise. We work with
our customers, partners and third-party software vendors to develop applications
built on top of BackWeb Foundation. We have also developed our own applications,
BackWeb Sales Accelerator and BackWeb Service Accelerator. BackWeb Sales
Accelerator enables a geographically dispersed sales organization to stay
instantly updated about competitive and customer information from external
sources, internal sales and marketing materials, product pricing information,
business applications and critical management announcements. BackWeb Service
Accelerator enables a product support organization to stay instantly updated
about product information, service requests, product training information and
software diagnostic tools.

INDUSTRY BACKGROUND

The Internet has changed the nature of business operations and competition.
Companies, their suppliers, customers and employees now have the means to
conduct business electronically, commonly referred to as e-business. As a
result, it is now possible for new competitors to enter and disrupt established
markets virtually overnight. The spread of electronic commerce has endowed
business customers and consumers with the ability to change vendors at the click
of a button. To compete effectively, companies need to react quickly to changing
market conditions, accelerate critical business processes and stay in closer
contact with sales people, partners and customers. To address these challenges,
companies must be able to effectively communicate the right information to the
right people at the right time. Existing Internet communication methods fall
short of the requirements of this new business environment, as these methods do
not overcome the network congestion, information overload and lack of
reliability characteristic of today's networks.

Companies face the complex challenge of reacting quickly to changes in the
competitive landscape and reliably communicating and tracking time-sensitive,
business-critical information throughout their extended enterprise. The
ineffectiveness of overloaded e-mail systems, passive websites and other
existing means of communication has impeded communication of information between
organizations and their customers, partners and employees. Companies using
existing means of communication are often unable to prioritize and personalize a
communication so that it receives the appropriate level of attention. Once a
communication is sent, companies cannot easily track the communication to ensure
it was received and interacted with, and further, are unable to elicit feedback.
In addition, recipients are inundated with information and lack an effective
means of immediately determining the importance and relevance of information
received, assigning priorities to that information and communicating their
responses. Consequently, recipients often react to this flood of information by
ignoring it or failing to respond in a timely manner. This often results in lost
business opportunities and foregone revenues.

Companies that need to communicate large amounts of digital data are often
limited by the capacity of their network connections and resources.
Bandwidth-intensive data, such as audio, video and multimedia

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presentations, software applications and updates, overloads the constrained
network resources of the extended enterprise. Meanwhile, the recipients of large
data files are forced to either disrupt their work in progress or to postpone
the download of the file, which may be extremely time-sensitive. These problems
are compounded when users are remote or mobile and become even more complicated
when multiple networks interact.

We believe that in order for the Internet to be used efficiently as an
effective communication medium across the extended enterprise, a complementary,
more sophisticated infrastructure must be introduced. This new communication
infrastructure must:

- permit the prioritization of communications to ensure that users are
presented with relevant information in a manner designed to ensure that
these communications receive the appropriate level of attention;

- communicate large amounts of digital data in any format quickly and
efficiently with a minimal impact on the network of a company and its
extended enterprise;

- permit tracking of the communication by management and the interaction
between management and the user; and

- be an open platform that facilitates the development of applications that
are scalable and easy to deploy.

THE BACKWEB SOLUTION

We develop, market and support Internet communication infrastructure and
applications software that enables companies to communicate business-critical
information to their customers, partners and employees. Our software enables
companies to efficiently target, deliver and track the use of sizeable digital
data in any format throughout their extended enterprise. Using our products and
technology, companies can ensure that the right information reaches the right
people at the right time.

Our products and technology provide the following benefits:

IMPROVE NETWORK EFFICIENCY AND BANDWIDTH UTILIZATION

Our unique technology significantly increases the efficiency and
reliability of communications over the Internet. Our Polite Agent technology
adapts the rate of transmission to match the bandwidth that is available to
ensure that BackWeb-generated traffic does not interfere with other network
traffic on the desktop connection. Our Polite Proxy server technology adapts
BackWeb traffic to utilize available bandwidth on the wide area network, or WAN,
connection. Our Polite Neighborcast technology enables each BackWeb client to
serve as an intelligent cache for other BackWeb clients. As a result, data is
delivered only once to a local area network, or LAN, after which it is
intelligently distributed to neighboring clients, thereby resulting in a fast
and efficient distribution of data. Our network efficiency is further enhanced
by our ability to reduce redundant network traffic by automatically transmitting
only the information that has changed since the user's previous download. In
addition, if a transmission is interrupted, it resumes at the point where it was
cut off, thereby eliminating the need to re-send the entire transmission. As a
result of these capabilities, data transmission across the extended enterprise
is scalable, transparent and efficient.

PRIORITIZE AND CONTROL THE COMMUNICATIONS FLOW

Our software enhances the management of critical information throughout the
extended enterprise. Companies can readily control the destination, access
rights and priority of information being communicated. Business managers can use
our software to determine the effectiveness of their communications through
reports on delivery, usage and interactions. In addition, our products can close
the communication loop by allowing managers to collect feedback from users and
process, review and communicate this feedback throughout the extended
enterprise. Further, business managers can use our tools to automate the
collection and dissemination of information

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from digital sources such as news feeds, databases, legacy systems and
competitors' websites, resulting in reduced management time and resources
dedicated to data acquisition.

CAPTURE IMMEDIATE ATTENTION TO CRITICAL INFORMATION

Our unique attention management technology incorporates intelligent
notification techniques to address the challenge of capturing attention in a
world of growing information overload. Our software increases the effectiveness
of communications throughout the extended enterprise by personalizing the
distribution of information. For example, the communication can be customized to
require the user to acknowledge receipt of the information or to automatically
launch a designated application. In addition, not only can business managers
determine the recipients of particular information, but recipients can also
subscribe to various information sources. These capabilities ensure recipients
that the information being received is important to them, and, as a result,
significantly increases the likelihood that it will be reviewed and acted upon.
In addition, the ability to elicit return responses results in greater
effectiveness of the overall communication.

STRATEGY

Our objective is to establish ourselves as the leading provider of Internet
communication infrastructure and applications software. The key elements of this
strategy include:

BECOME THE DE FACTO STANDARD FOR INTERNET COMMUNICATION INFRASTRUCTURE

We intend to establish BackWeb Foundation as the leading infrastructure
software platform for Internet communication. We believe that the recent
adoption of BackWeb Foundation by leading companies across various industries
validate our technology and should facilitate its broad market acceptance. In
addition, we believe that the selection of our products by industry leaders
should promote the adoption of our Internet communication solution by these
companies' partners, suppliers and distributors. We also believe that this
adoption, along with the competitive advantages achieved with our products, will
drive other industry participants to adopt our products as their preferred
solution. We intend to continue to focus our development efforts on increasing
the functionality and flexibility of BackWeb Foundation to facilitate its
continued adoption and to increase the technological barriers to entry.

LEVERAGE INFRASTRUCTURE PLATFORM TO INTRODUCE MULTIPLE INTERNET COMMUNICATION
APPLICATIONS

Our core technology has been designed as an open platform upon which
BackWeb, our customers, our partners and third-party vendors can develop
Internet communication applications that are easy to deploy and to which
additional capabilities can easily be added. We actively market and support our
applications built on top of our infrastructure software, BackWeb Sales
Accelerator and BackWeb Service Accelerator. These applications enable companies
to focus the attention of their sales forces or product support organizations,
partners and customers on timely, business-critical information. We intend to
increase our product offerings by introducing new applications, developed both
internally and through third-parties, targeted at various business functions
throughout the extended enterprise.

FOCUS ON SELECTED VERTICAL MARKETS

We target selected vertical markets where we believe our solutions offer
significant value. To date, these markets have included telecommunications, high
technology, financial services, retail and travel services. Within each
industry, we typically target the leader and then leverage our success to
generate additional sales to other companies in that market. We also partner
with large applications vendors and systems integrators that serve these
vertical markets. Through these strategic partnerships, we are able to
significantly expand our installed base as our products are incorporated into
the vendor's products and the systems integrator's custom-developed
applications. We and our partners can, in turn, use this installed base to
develop and market BackWeb Foundation and

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additional BackWeb Foundation-based applications.

EXTEND TECHNOLOGICAL LEADERSHIP POSITION

We intend to continue to devote substantial resources to the development of
new and innovative software products and technologies. We believe that our early
understanding and penetration of the market for Internet communication
infrastructure software has allowed us to establish technological leadership and
a time-to-market advantage. We intend to extend our leadership position and
build further technological barriers to entry by enhancing the functionality of
our current BackWeb Foundation infrastructure software platform and developing
innovative applications on top of it.

EXPAND DIRECT AND INDIRECT DISTRIBUTION CHANNELS

We have established a direct sales force in the United States and Canada
and use a combination of direct and indirect channels in Europe and Japan. We
intend to increase the size of our direct sales force and to establish
additional sales offices both domestically and internationally. We intend to
continue to complement our direct sales force by establishing multiple
additional indirect distribution channels worldwide through original equipment
manufacturers, large applications vendors and systems integrators. These
indirect channels are intended to increase geographic sales coverage and address
potential customers that would otherwise be beyond the reach of our direct sales
organization.

TECHNOLOGY AND PRODUCTS

We currently sell BackWeb Foundation, BackWeb Sales Accelerator and BackWeb
Service Accelerator. We license BackWeb Foundation to customers, developers and
independent software vendors, thereby enabling them to integrate their own
applications or third-party applications with our infrastructure software
platform. BackWeb Sales Accelerator and BackWeb Service Accelerator provide our
customers with packaged applications that incorporate BackWeb Foundation.

TECHNOLOGY

Our infrastructure software platform is powered by three core technologies
that we have developed: Polite Communications, Attention Management and Closed
Loop Delivery.

POLITE COMMUNICATIONS. Polite Communications enables the transmission of
significant volumes of digital data through existing networks without
interfering with normal network applications and traffic. Polite Communications
enables companies to provide any user with rapid communication of
bandwidth-intensive data, regardless of whether they utilize high-speed data
access services. This bandwidth-sensitive delivery is accomplished through the
use of various components including the following:

- POLITE AGENT monitors the network activity of the client workstation and
communicates with BackWeb servers only when the connection is idle.

- POLITE PROXY monitors wide area network, or WAN, connections in the same
manner, using available bandwidth.

- POLITE NEIGHBORCAST enables the automatic transmission of digital data
from one BackWeb Client to others on the same local area network, or LAN,
obviating the need for transmission of the data from the server to each
BackWeb Client. The transmission from BackWeb Client to BackWeb Client on
the same LAN is a fast, efficient and cost-effective means of
disseminating the data.

- POLITE UPSTREAM enables the automatic transmission of digital data from
BackWeb Clients to the BackWeb Server when the network connection is
idle.

Polite Communications further improves the efficiency of transmission by
reducing the

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amount of data to be transmitted through various techniques, including:

- compression of data;

- updating only the information which has changed since the user's previous
download; and

- eliminating the need to re-send an interrupted transmission by
progressively resuming the transmission at the point where it was
interrupted.

ATTENTION MANAGEMENT AND FLASH NOTIFICATIONS. Attention Management is an
automatic notification system that alerts users to the delivery of
business-critical information through a variety of display techniques including
tickers and Flash notifications. These techniques enable companies to attract
immediate attention to time-sensitive information. Flashes are a particular
display technique that can be customized to notify users and, if desired, can
allow management to track the usage of the information. For example, the
recipient can be required to acknowledge their receipt of the information, or to
immediately launch and interact with a designated application. In addition,
Attention Management displays can be programmed to play automatically according
to specific scheduling and expiration parameters, after which the information
and associated data can be automatically purged.

CLOSED LOOP DELIVERY. Our Closed Loop Delivery capabilities allow companies
to track, manage and survey the effectiveness of communications throughout their
extended enterprise. Companies can track the status and use of any digital data
delivered via BackWeb or generate reports on the overall usage of the system on
a per-user or per-content basis. Using these reports, companies can determine
what types of communication are most effective or most popular and adapt their
communication strategy appropriately.

PRODUCTS

BACKWEB FOUNDATION. Our infrastructure software platform, BackWeb
Foundation, is based on a set of flexible components including BackWeb Server,
BackWeb Development Tools, BackWeb Client and BackWeb Add-On Components. These
components enable an organization to capture information from virtually any data
source, including websites, file servers, databases, applications and legacy
systems, and efficiently and reliably deliver it throughout its extended
enterprise. BackWeb Server is a software server which runs on standard hardware
servers, and communicates with BackWeb Client, our software program operating on
personal computers or workstations.

BackWeb Server. BackWeb Server communicates with BackWeb Clients and is
capable of receiving digital data from various sources, such as the Internet,
intranet sites, databases, applications and legacy systems and automatically
distributes that data to BackWeb Clients. The BackWeb Server is highly scalable
and optimized to support a large number of clients concurrently. Components of
BackWeb Server include:

- BackWeb Server Console. A console that allows a system administrator to
manage BackWeb Server and control the information flow across the
enterprise through a point-and-click graphical user interface.

- BackWeb Polite Proxy Server. A software server that:

-- caches frequently accessed material for a group of BackWeb clients,
eliminating the need for redundant data transfers from a company's
server;

-- monitors the WAN connection and communicates only when the network
connection is below a certain threshold; and

-- enables a system administrator to manage the BackWeb Proxy Server
Console.

BackWeb Development Tools. BackWeb Development Tools are used to customize
the BackWeb Foundation. Components of BackWeb Development Tools include:

- BackWeb Server Extension API. An application programming interface that
allows companies to integrate the BackWeb Server with any digital data
source, enabling automated publishing
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of content or files from any source to the BackWeb Server.

- BackWeb Automation SDK and Editor. Includes application programming
interfaces and a library of BackWeb-supplied programs which perform tasks
between the BackWeb Server and external data sources.

- BackWeb BALI Editor. Our BackWeb Authoring Language Interface Editor is
used by companies to create and modify Flashes.

BackWeb Client. BackWeb Client, our software program operating on personal
computers or workstations, operates in the background and communicates with
designated BackWeb Servers during the idle time of a user's network connection,
thereby allowing the user to receive data transparently while using other
applications without disruption. BackWeb Client:

- displays information through Flashes and other displays and user
interfaces, which may be customized;

- provides an application programming interface to enable customer and
third-party applications to integrate with BackWeb Client; and

- can be deployed by a single automatic installation file of less than 100k
in size that can be sent to the user via the Internet, e-mail or floppy
disk.

BackWeb Add-On Components. BackWeb Foundation, our infrastructure software
platform, also includes the following add-on components:

- BackWeb Enhanced Security Module. Provides encrypted communications
between BackWeb Server and BackWeb Clients and certificate authentication
of data packages. This module incorporates industry standard technologies
from RSA Data Security and Verisign.

- BackWeb AutoFile Update Manager. Enables the automatic replication of
files or file directories from any directory accessible to the BackWeb
Server. Allows the placement of the replicated files in any location on
the user's system. Allows management to have complete flexibility over
the organization of information on the user's desktop.

- BackWeb IP Multicasting Connector. In cooperation with StarBurst, we
created optional add-ons to the BackWeb Server and BackWeb Client that
allow them to communicate via StarBurst's multicasting Internet protocol.
These add-ons work in concert with our protocols to provide a deeply
integrated communications solution for customers with multicast Internet
protocol environments.

- BackWeb Polite Upstream. BackWeb Polite Upstream enables BackWeb clients
to deliver digital data to BackWeb Servers, such as completed
questionnaires or surveys.

BACKWEB SALES ACCELERATOR. In December 1998, we introduced BackWeb Sales
Accelerator, our first packaged application built on BackWeb Foundation. BackWeb
Sales Accelerator allows companies to keep their extended enterprise equipped
with the most up-to-date documents, market information and management
announcements by automating the collection and dissemination of business
critical information. This application is targeted at companies that need to
communicate to geographically dispersed sales forces and indirect sales channels
to accelerate their business execution and response time to critical changes
affecting their business. Examples of information typically communicated by
BackWeb Sales Accelerator include:

- competitive and industry news and announcements;

- new pricing policies and updated price lists;

- product release announcements and associated fact sheets, white papers,
and training materials;

- new or updated software tools;

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- critical executive announcements, in video or other formats, regarding
company acquisitions or strategic priorities; and

- new or modified sales presentations and demonstrations.

BackWeb Sales Accelerator consists of the Market Intelligence Manager,
Strategic Publishing Manager and Automated Marketing Encyclopedia modules:

- Market Intelligence Manager automatically monitors, collects and
organizes information from Internet or intranet sites to keep an
organization's sales force abreast of the latest industry news,
competitive announcements and customer information.

- Strategic Publishing Manager enables managers to publish and direct the
immediate attention of their constituents to time-sensitive and business
critical information. Editorial, publishing and access rights are
centrally controlled. The published information can be disseminated to
users' desktops using our Flash technology.

- Automated Marketing Encyclopedia enables a company to create a library of
sales information and productivity software to which extended enterprise
users can subscribe. Once subscribed, users automatically receive this
information, software and any subsequent updates.

BACKWEB SERVICE ACCELERATOR. In August 1999, we introduced BackWeb Service
Accelerator, another packaged application built on BackWeb Foundation. BackWeb
Service Accelerator allows companies to keep their extended enterprise equipped
with the most up-to-date services-related documents, information and management
announcements by automating the collection and dissemination of
business-critical information. This application is targeted at companies that
need to communicate to geographically dispersed service organizations and
indirect market service providers to accelerate their business execution and
response time to critical changes affecting their business.

BackWeb Service Accelerator consists of the Automated Encyclopedia,
Priority Publishing Manager and Rapid Survey modules:

- Automated Encyclopedia enables a company to create a library of service
information and software to which extended enterprise users can
subscribe. Once subscribed, users automatically receive this information,
software and any subsequent updates.

- Priority Publishing enables managers to publish and direct the immediate
attention of their constituents to time-sensitive and business critical
information. Editorial, publishing and access rights are centrally
controlled. The published information can be disseminated to user's
desktops using our Flash technology.

- Rapid Survey enables companies to acquire feedback from its service and
support personnel through surveys which collect and analyze information.
Companies can publish these surveys through a web-based interface and
create questions that have one response, multiple responses or text
answers. The published information can be disseminated to user's desktops
using our Flash technology.

CUSTOMERS

We sell our products to a broad base of customers from a variety of
industries, including telecommunications, high technology, financial services,
retail and travel services. Our customers include industry leaders such as: AT&T
Corp., British Telecommunications plc, Carlson Travel, Cisco Systems, Inc.,
Compaq Computer Corporation, Delta Airlines, Electronic Data Systems, Fidelity
Investments Institutional Services Co., Galileo, Goldman Sachs & Co.,
Hewlett-Packard, AC Nielsen, Network Associates, Inc., o.tel.o, Pacific Bell,
RiteAid, Schlumberger, Siemens, US WEST, Nortel Networks and Lucent
Technologies, Inc.

In 1997, revenues from two customers represented 19% and 11% of our
revenues. In 1998, no customer accounted for more than
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10% of our revenues. In 1999, revenues from one customer accounted for 13% of
our revenues.

ALLIANCES WITH BUSINESS PARTNERS

In order to accelerate the acceptance of our products, we have developed
cooperative alliances with leading technology vendors, original equipment
manufacturers, applications vendors, web site portals, and Internet-based
solutions providers. We believe that these alliances will provide additional
marketing and sales channels for our products and will facilitate establishing
broad market acceptance for BackWeb's products. The benefits of this approach
include enabling BackWeb to concentrate on its core competencies while allowing
the development of applications by business partners and reducing the
time-to-market for applications based on BackWeb's products. As of December 31,
1999, we have signed agreements for business alliances with Baan Development
B.V., Cable & Wireless USA Inc., RealNetworks, Inc., SAP AG and SAP Labs, Inc.

SALES AND MARKETING

Our sales strategy is to pursue opportunities with large accounts and
industry leaders through our direct sales force, and to penetrate various
targeted market segments through multiple indirect distribution channels and
strategic partnerships.

We maintain direct sales personnel in the United States, Canada, Japan, the
United Kingdom, the Netherlands, Sweden, Germany and France. The direct sales
force consists of sales representatives, systems engineers and telemarketing
representatives.

We intend to increase the size of our direct sales force and to establish
additional sales offices domestically and internationally. Competition for sales
personnel is intense, and we may not be able to attract, assimilate or retain
additional qualified personnel in the future.

We also partner with large applications vendors and systems integrators
that serve our target markets. Through these strategic partnerships, we are able
to significantly expand our installed base as our products are incorporated into
the vendor's products and systems integrator's custom-developed applications.
This installed base can, in turn, be leveraged by us and our partners to develop
and market BackWeb Foundation and additional BackWeb Foundation-based
applications. We are in the early stages of building these channels and
currently have entered into written agreements with a limited number of
companies. We may not be able to enter into agreements or establish
relationships with desired distribution partners on a timely basis or ensure
that such distribution partners will devote adequate resources to selling our
products.

We believe it is important to have a strong international presence. We have
established sales offices in the United States, Canada, Japan and a number of
countries in Europe. We intend to hire additional sales and marketing personnel
in these offices and to establish additional offices to support our
international operations.

We market our products using public relations activities, partners,
marketing, advertising, trade shows and marketing and sales materials.

CUSTOMER SERVICE AND SUPPORT

We are in the process of developing a comprehensive service and support
organization. Our services are primarily comprised of technical support,
consulting and training.

Our technical support is provided to our customers on an annual basis for
an additional fee. This support includes remote assistance with installation,
configuration and initial set-up of the application, run-time support and
software maintenance releases.

We also provide consulting, training and on-site installation services. We
expect to expand our variety of services both directly and through third-party
relationships in order to meet the growing needs of our customers.

RESEARCH AND DEVELOPMENT

We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing

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additional applications, incorporating that technology and maintaining the
competitiveness of our product and service offerings. We have invested
significant time and resources in creating a structured process for undertaking
all product development projects.

In addition, we have actively recruited key computer scientists, engineers
and software developers and have complemented these individuals by hiring senior
management with backgrounds in the commercial software development industries.
Through our acquisition of Lanacom, we enhanced our research and development
capabilities, particularly with respect to the development of software
applications.

Since our inception, we have focused our research and development efforts
on developing and enhancing BackWeb Foundation and our pre-packaged
applications. BackWeb is currently working on new applications and adding
features and new functionality to our products. Our research and development
expenses totaled $5.5 million for the year ended December 31, 1999, $4.6 million
for the year ended December 31, 1998, $4.0 million for the year ended December
31, 1997.

COMPETITION

We compete in markets that are new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition from current and potential competitors. Many of
these companies have greater name recognition, longer operating histories,
larger customer bases and significantly greater financial, technical, marketing,
public relations, sales, distribution and other resources. In addition, some of
our potential competitors are among the largest and most well-capitalized
software companies in the world. We expect to face competition from these and
other competitors, including:

- companies addressing certain segments of our market such as Marimba and
Tibco;

- sales force automation and enterprise resource planning, or ERP, vendors
that may introduce products competitive to our packaged applications; and

- communications and information management platform companies such as IBM
and its subsidiary Lotus Development Corporation, Microsoft and Sun
Microsystems.

Additional competition could come from operating system vendors, online
service providers, client/server applications and tools vendors, multimedia
companies, document management companies and network management vendors. If any
of our competitors were to become the industry standard or were to enter into or
expand relationships with significantly larger companies through mergers,
acquisitions or otherwise, our business and operating results could be seriously
harmed. In addition, potential competitors may bundle their products or
incorporate functionality into existing products in a manner that discourages
users from purchasing our products.

We expect that competition will increase in the near term and that our
primary long-term competitors may not have entered the market yet. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end-users from a central location. This creates the potential for claims to
be made against us, either directly or through contractual indemnification
provisions with customers, including defamation, negligence, copyright or
trademark infringement, personal injury, invasion of privacy or other legal
theories based on the nature, content or copying of such materials. These claims
have been brought and sometimes successfully pressed against online service
providers in the past. It is also possible that if any such information, or
information that is copied and stored by customers that have deployed our
products, contains errors, third parties could

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<PAGE> 33

make claims against us for losses incurred in reliance on such information.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us for all
liability that may be imposed.

Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, copyright, trade secret and
trademark law to protect our technology. In June 1999, BackWeb received a U.S.
patent for its "polite" technology. However, we believe that factors such as the
technological and creative skills of our personnel, new product developments,
frequent product enhancements and reliable product maintenance are more
essential to establishing and maintaining a technology leadership position.
Others may develop technologies that are similar or superior to our technology.

We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology. Policing unauthorized use of our products is difficult, and the
steps we have taken might not prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as do the laws of the United States of America.

Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. We believe that many of our competitors have filed or intend to file
patent applications covering aspects of their technology that they may claim our
technology infringes. Third parties may claim infringement by us with respect to
our products and technology. Any such claims, with or without merit, could:

- be time-consuming to defend;

- result in costly litigation;

- divert management's attention and resources;

- cause product shipment delays; or

- require us to enter into royalty or licensing agreements.

Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of product infringement against
us and our failure or inability to license the infringed or similar technology
could harm our business.

EMPLOYEES

As of December 31, 1999, we had a total of 208 employees, 202 of whom were
full-time employees. Of the total number of employees, 68 were engaged in
research and development including 6 part-time employees, 82 in sales, marketing
and business development, 32 in professional services and technical support and
26 in finance, administration and operations. Our future performance depends in
significant part upon the continued service of our key technical, sales and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of our key employees could have a material adverse effect on our
business, financial condition and results of operations. Our future success also
depends on our continuing ability to attract, train and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and we may not be able to retain our key personnel in the future. None
of our employees is represented by a labor union. We have not experienced any
work stoppages and considers our relations with our employees to be good.

In addition, 58 of our employees are located in Israel. Israeli law and
certain provisions of the nationwide collective bargaining agreements between
the Histadrut, which is the General Federation of Labor in Israel, and

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<PAGE> 34

the Coordinating Bureau of Economic Organizations which is the Israeli
federation of employers' organizations, apply to our Israeli employees. These
provisions principally concern the maximum length of the work day and the work
week, minimum wages, contributions to a pension fund, insurance for work-related
accidents, procedures for dismissing employees, determination of severance pay
and other conditions of employment. Furthermore, pursuant to such provisions,
the wages of most of our employees are subject to cost of living adjustments,
based on changes in the Israeli Consumer Price Index. The amounts and frequency
of such adjustments are modified from time to time. Israeli law generally
requires the payment of severance pay upon the retirement or death of an
employee or upon termination of employment by the employer or, in certain
circumstances, by the employee. We currently fund our ongoing severance
obligations for our Israeli employees by making monthly payments for insurance
policies to cover these obligations.

FACILITIES

BackWeb leases approximately 8,500 square feet in a single office building
located in Ramat Gan, Israel and approximately 14,365 square feet in a single
office building located in San Jose, California. The office space in Ramat Gan,
Israel is leased pursuant to a lease that terminates in May 2004. The office
space in San Jose, California is leased pursuant to a lease that expires in
January 2002. In addition, BackWeb also maintains a lease for approximately
3,970 square feet of office space in Toronto, Canada. This lease expires in
December 2000. In January 2000, we entered into a lease for approximately 8,500
square feet of office space in Toronto, which expires in August 2006. BackWeb
also leases space in the following cities:

<TABLE>
<CAPTION>
CITY COUNTRY
---- -------
<S> <C>
New York City, NY U.S.A.
Chicago, IL U.S.A.
McLean, VA U.S.A.
Atlanta, GA U.S.A.
Carrolton, TX U.S.A.
Framington, MA U.S.A.
Doylestown, PA U.S.A.
Paris France
Bagshot United Kingdom
Amsterdam Netherlands
Uppsala Sweden
Hamburg/Munchen Germany
Tokyo Japan
</TABLE>

LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information regarding the directors and
executive officers of BackWeb as of December 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eli Barkat................................ 36 Chairman of the Board and Chief Executive
Officer
Hanan Miron............................... 49 Chief Financial Officer
Gwen Spertell............................. 46 Senior Vice President, Sales, Marketing
and Business Development
Roni Or................................... 45 Vice President, Product Development
Charles Federman.......................... 43 Director
Joseph Gleberman.......................... 42 Director
William Larson............................ 44 Director
Gil Shwed................................. 32 Director
</TABLE>

ELI BARKAT has served as our Chief Executive Officer since 1996. From 1988
to February 1996, Mr. Barkat served as a Managing Director and Vice President of
Business Development of BRM Technologies, Ltd, a technology venture firm. Prior
to 1988, Mr. Barkat held various positions with the Aurec Group, a
communications media and information company, and Daizix Technologies, a
computer assisted design applications company. In addition Mr. Barkat served as
a paratrooper in the Israel Defense Forces where he attained the rank of
lieutenant. Mr. Barkat has a bachelor of science degree in computer science and
mathematics from the Hebrew University of Jerusalem.

HANAN MIRON has served as our Vice President and Chief Financial Officer
since March 1999. From January 1997 to February 1999, Mr. Miron served as
President of North American Operations of Nice Systems Ltd., a computer
telephony integration company. From July 1992 to December 1996, Mr. Miron served
as Vice President and Chief Financial Officer of Nice Systems. Mr. Miron has an
L.L.B. degree from the Law School of the Hebrew University and a M.B.A. degree
from the Amos Tuck School of Business Administration of Dartmouth College.

GWEN SPERTELL has served as our Senior Vice President, Sales, Marketing and
Business Development since December 1997. From September 1989 to December 1997,
Ms. Spertell served in various positions at Oracle Corporation, a software
company, most recently as Vice President, Global ISV Alliances. Ms. Spertell has
a bachelor of arts degree in economics from Rutgers University.

RONI OR has served as our Vice President, Product Development since May
1998. From February 1996 to May 1998, Mr. Or served as Director of Online
Services at the Aurec Group. From January 1991 to February 1996, Mr. Or served
as Research and Development Director of Scitex Corporation, a digital printing
system company. Mr. Or has a bachelor of science degree in computer science from
the Technion Haifa Institute of Technology and a M.B.A. from the Hebrew
University of Jerusalem.

CHARLES FEDERMAN has served as a director of BackWeb since November 1996.
Since January 1998, Mr. Federman has served as Managing Director of BRM
Technologies, Ltd. From 1983 to January 1998, Mr. Federman served in various
positions at Broadview Associates LLC, a financial advisory company, most
recently serving as Chairman. Mr. Federman serves on the Board of Directors of
Phoenix Technologies Ltd., a software company, Mathsoft, Inc., a software
company, and International Microcomputer Software, Inc., a software company. Mr.
Federman holds a bachelor of science degree from the Wharton School of the
University of Pennsylvania.

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<PAGE> 36

JOSEPH GLEBERMAN has served as a director of BackWeb since November 1998.
Since November 1996, Mr. Gleberman has served as a Managing Director in the
Principal Investment Area of Goldman, Sachs & Co., an investment banking firm.
From November 1990 to November 1996, Mr. Gleberman served as a partner of
Goldman, Sachs & Co., a company he joined in 1982. Mr. Gleberman serves on the
Board of Directors of Applied Analytical Industries, a pharmaceutical service
and development organization and Ticketmaster Online-
CitySearch, Inc., a provider of locally-developed online information and
transaction services. Mr. Gleberman holds a bachelor of arts and a master of
arts degree from Yale University and an M.B.A. from Stanford University Graduate
School of Business.

WILLIAM LARSON has been a director of BackWeb since September 1997. Since
September 1993, Mr. Larson has served as Chief Executive Officer of Networks
Associates, Inc., a software company, where he currently also serves as
President and Chairman of the Board. Mr. Larson has a bachelor of science degree
from the Wharton School of the University of Pennsylvania and a J.D. from
Stanford University.

GIL SHWED has served as a director of BackWeb since March 1999. Since July
1993, Mr. Shwed has served as Chief Executive Officer of Check Point Software
Technologies Ltd., a software company, where he currently also serves as
President and a director. From June 1992 to June 1993, Mr. Shwed served as a
Software Manager of Heliogram, a software development company.

ELECTION OF DIRECTORS

Our Articles of Association provide for a board of directors of not less
than four members nor more than seven. There are currently five directors on our
Board. We currently have a classified Board of Directors consisting of one Class
I director, Joseph Gleberman, two Class II directors, William Larson and Charles
Federman and two Class III directors, Eli Barkat and Gil Schwed. These directors
have been elected to serve until the annual meetings of shareholders to be held
in 2000 for the Class I director, 2001 for the Class II directors and 2002 for
the Class III directors. These provisions, when coupled with the provision of
our Articles of Association authorizing our Board to fill vacant directorships
or increase the size of the Board, may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the Board. Each
director is elected by an ordinary resolution of the annual general meeting of
our shareholders, by a vote of the holders of a majority of the voting power
represented at such meeting. Each director holds office until the annual general
meeting of our shareholders for the year in which his or her term expires and
until his or her successor has been elected. Directors who are up for election
in a given year may be removed at any time during that year by an ordinary
resolution of the general meeting of the shareholders.

ALTERNATE DIRECTORS

Our Articles of Association 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 or her, 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.

OUTSIDE DIRECTORS

The new Israeli Companies Law requires Israeli companies with shares that
have been offered to the public in or outside of Israel to

33
<PAGE> 37

appoint at least two outside directors by August 1, 2000. No person may be
appointed as an outside director if the person or the person's relative,
partner, employer or any entity under the person's control has or had, on or
within the two years preceding the date of the person's appointment to serve as
outside director, any affiliation with the company or any entity controlling,
controlled by or under common control with the company. The term affiliation
includes:

- an employment relationship;

- a business or professional relationship maintained on a regular basis;

- control; and

- service as an office holder.

No person may serve as an outside director if the person's position or
other business activities create, or may create, a conflict of interest with the
person's responsibilities as an outside director or may otherwise interfere with
the person's ability to serve as an outside director. If, at the time outside
directors are to be appointed, all current members of the board of directors are
of the same gender, then at least one outside director must be of the other
gender.

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

- the majority of shares voted at the meeting, including at least one-third
of the shares held by non-controlling shareholders voted at the meeting,
vote in favor of election of the director; or

- the total number of shares held by non-controlling shareholders voted
against the election of the director does not exceed one percent of the
aggregate voting rights in the company.

The initial term of an outside director is three years and may be extended
for an additional three years. Outside directors may be removed only by the same
percentage of shareholders as is required for their election, or by a court, and
then only if the outside directors cease to meet the statutory qualifications
for their appointment or if they violate their duty of loyalty to the company.
Each committee of a company's board of directors must include at least one
outside director.

In addition, the Nasdaq National Market requires us to have at least two
independent directors on our board of directors and to establish an audit
committee, at least a majority of whose members are independent of management.
We intend to appoint new directors who will qualify both as independent
directors under the Nasdaq National Market requirements and as outside directors
under the Companies Law at our next annual shareholders meeting, which will be
held no later than August 1, 2000.

AUDIT COMMITTEE

The Companies Law requires public companies to appoint an audit committee.
The responsibilities of the audit committee include identifying irregularities
in the management of the company's business and approving related party
transactions as required by law. An audit committee must consist of at least
three directors, including at least two outside directors. The chairman of the
board of directors, any director employed by or otherwise providing services to
the company, and a controlling shareholder or any relative of a controlling
shareholder, may not be a member of the audit committee. An audit committee may
not approve an action or a transaction with a controlling shareholder, or with
an office holder, unless at the time of approval two outside directors are
serving as members of the audit committee and at least one of the outside
directors was present at the meeting in which an approval was granted.

INTERNAL AUDITOR

Under the Companies Law, the board of directors must appoint an internal
auditor, nominated by the audit committee. The role of the internal auditor is
to examine, among other matters, whether the company's actions comply with the
law and orderly business procedure. Under the Companies Law, the internal
auditor may be an employee of the company but not an office holder, or an
affiliate, or a relative of an office holder or affiliate, and he or she may not
be the

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<PAGE> 38

company's independent accountant or its representative.

APPROVAL OF CERTAIN TRANSACTIONS

The Companies Law codifies the fiduciary duties that office holders,
including directors and executive officers, owe to a company. An office holder,
as defined in the Companies Law, is a director, general manager, chief business
manager, deputy general manager, vice general manager, chief business manager,
executive vice president, vice president, other manager directly subordinate to
the managing director or any other person assuming the responsibilities of any
of the foregoing positions without regard to the person's title. An office
holder's fiduciary duties consist of a duty of care and a duty of loyalty. The
duty of loyalty includes avoiding any conflict of interest between the office
holder's position in the company and his personal affairs, avoiding any
competition with the company, avoiding exploiting any corporate opportunity of
the company in order to receive personal advantage for himself, herself or
others, and revealing to the company any information or documents relating to
the company's affairs which the office holder has received due to his or her
position as an office holder. Each person listed in the table under "Management"
above is an office holder. Under the Companies Law, all arrangements as to
compensation of office holders who are not directors require approval of the
board of directors. Arrangements regarding the compensation of directors also
require audit committee and shareholder approval.

The Companies Law requires that an office holder promptly disclose any
personal interest that he or she may have and all related material information
known to him or her, in connection with any existing or proposed transaction by
the company. In addition, if the transaction is an extraordinary transaction, as
defined under Israeli law, the office holder must also disclose any personal
interest held by the office holder's spouse, siblings, parents, grandparents,
descendants, spouse's descendants and the spouses of any of the foregoing, or by
any corporation in which the office holder is a five percent or greater
shareholder, director or general manager or in which he or she has the right to
appoint at least one director or the general manager. An extraordinary
transaction is defined as a transaction not in the ordinary course of business,
a transaction that is not on market terms, or a transaction that is likely to
have a material impact on the company's profitability, assets or liabilities.

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

The Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company, which includes a shareholder that holds 25% or
more of the voting rights if no other shareholder owns more than 50% of the
voting rights in the company. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, and
the terms of compensation of a controlling shareholder who is an office holder,
require the approval of the audit committee, the board of directors and the
shareholders of the company.

The shareholder approval must either include at least one-third of the
disinterested shareholders who are present, in person or by proxy, at the
meeting or, alternatively, the total shareholdings of the disinterested
shareholders who vote against the transaction must not represent more than one
percent of the voting rights in the company.

Under the Companies Law, a shareholder has a duty to act in good faith
towards the
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<PAGE> 39

company and other shareholders and refrain from abusing his power in the
company, including, among other things, voting in the general meeting of
shareholders on the following matters:

- any amendment to the articles of association;

- an increase of the company's authorized share capital;

- a merger; or

- approval of interested party transactions that require shareholder
approval.

In addition, any controlling shareholder, any shareholder who can determine
the outcome of a shareholder vote and any shareholder who, under a company's
articles of association, can appoint or prevent the appointment of an office
holder, is under a duty to act with fairness towards the company. The Companies
Law does not describe the substance of this duty. For information concerning the
direct and indirect personal interests of some of our office holders and
principal shareholders in transactions with us, see "Related Party
Transactions."

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Israeli law permits a company to insure an office holder in respect of
liabilities incurred by him as a result of the breach of his/her duty of care to
the company or to another person, or as a result of the breach of his fiduciary
duty to the company, to the extent that he/she acted in good faith and had
reasonable cause to believe that the act would not prejudice the company. A
company can also insure an office holder for monetary liabilities as a result of
an act or omission that he/she committed in connection with his/her serving as
an office holder. Furthermore, a company can indemnify an office holder for
monetary liability in connection with his/her activities as an office holder.

Our articles of association allow us to insure and indemnify office holders
to the fullest extent permitted by law. We have acquired directors' and
officers' liability insurance covering our officers and directors and our
subsidiaries for certain claims.

COMPENSATION OF DIRECTORS

Directors do not receive cash compensation from BackWeb for services they
provide as directors, although they are reimbursed for certain expenses in
connection with attendance at board and committee meetings. From time to time,
certain directors who are not employees of BackWeb may receive grants of options
to purchase BackWeb's ordinary shares.

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<PAGE> 40

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned for services
rendered to us in all capacities for the fiscal year ended December 31, 1999 by
our Chief Executive Officer and the four next most highly
compensated executive officers who earned more than aggregate cash compensation
of $100,000 during the fiscal year ended December 31, 1999 (collectively, our
"Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION SECURITIES
--------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS COMPENSATION($)
--------------------------- ---------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Eli Barkat......................... $220,008 $130,000 -- -- --
Chief Executive Officer
Hanan Miron........................ 166,667 39,500 -- 138,333 --
Chief Financial Officer
Roni Or............................ 115,355 18,500 -- 62,013 22,378
Vice President, Product
Development
Gwen Spertell...................... 197,917 78,750 -- -- --
Senior Vice President, Sales,
Marketing and Business
Development
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1999, to each of the executive officers named in
the Summary Compensation Table. No stock appreciation rights were granted during
this period.

The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at fair
market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income tax
liability incurred by the optionee in connection with such exercise. The fair
market value of our common stock was estimated by the board of directors on the
basis of the purchase price paid by investors for shares of our preferred stock,
the liquidation preferences and other rights, privileges and preferences
associated with the preferred stock and an evaluation by the board of our
revenues, operating history and prospectus.

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<PAGE> 41

The following table presents the grants of stock options to each of the
named officers under our 1998 Stock Option Plan during the fiscal year ended
December 31, 1999, including the potential realizable value of the options at
assumed 5% and 10% annual rates over the term of the option, compounded
annually. These rates of returns are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projections of our
future stock prices. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our ordinary shares.

Percentages shown under "Percent of Total Options Granted to Employees in
the Last fiscal Year" are based on an aggregate of 2,690,586 options to
employees of Backweb under its 1996 and 1998 Stock Option Plans during the
fiscal year ended December 31, 1999.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN THE PRICE EXPIRATION ------------------------------
GRANTED LAST FISCAL YEAR ($/SHARE) DATE 5% 10%
NAME ---------- ------------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Eli Barkat............. 350,000 13.0% $5.49 3/25/09 518,809 1,054,903
Hanan Miron............ 316,666 11.8% $3.00 3/02/09 142,499 411,666
Roni Or................ -- -- -- -- -- --
-- -- -- -- -- --
Gwen Spertell.......... -- -- -- -- -- --
-- -- -- -- -- --
</TABLE>

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

The following table sets forth options exercised by each of the executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 1999, and the number and value of securities underlying unexercised
options that are held by these executive officers as of December 31, 1999.

Amounts shown under the column "Value Realized" are equal to the fair
market value of the purchased shares on the option exercise date, less the
exercise price paid for such shares.

Amounts shown under the column "Value of Unexercised In-the-Money Options
at Fiscal Year End" are based on the fair market value of our common stock at
December 31, 1999, $42.13 per share, less the exercise price payable for such
shares.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eli Barkat.................. 350,000 $ 84,000 -- -- -- --
Hanan Miron................. 158,333 71,250 138,333 -- 5,412,970 --
Roni Or..................... 30,000 $896,250 62,013 207,988 2,482,380 8,125,610
Gwen Spertell............... 369,208 695,674 -- 122,458 -- 4,901,993
</TABLE>

OPTION PLANS

We maintain three option plans, a 1996 Israeli Option Plan, a 1996 U.S.
Option Plan and a 1998 U.S. Option Plan.

An aggregate of approximately 10.3 million shares have been reserved under
the 1996 Israeli Option Plan, the 1996 U.S. Option Plan and the 1998 U.S. Option
Plan, including those options already exercised. Under these

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<PAGE> 42

plans, in 1998 and 1999, options to purchase 3,236,500 and 2,690,586 ordinary
shares were granted. Options to purchase 5,271,131 ordinary shares were
outstanding at December 31, 1999, and 2,624,642 options remained available for
future grant. The options granted generally vest over a four-year period from
the date of the grant.

1996 ISRAELI OPTION PLAN

Under our Israeli Option Plan, options exercisable for ordinary shares may
be granted to employees, officers, directors and consultants of BackWeb or any
other member of the BRM group. The exercise price of options granted under the
Israeli Option Plan may not be less than the nominal value of the shares into
which such option is exercisable. Each option granted under the Israeli Option
Plan may expire no later than seven years from the date of the grant. Options
granted under the Israeli Option Plan generally vest over a four-year period.

1996 U.S. OPTION PLAN

Under our 1996 U.S. Option Plan incentive stock options exercisable for
ordinary shares have been granted only to employees, and nonstatutory stock
options may be granted to employees, officers, directors and consultants of
BackWeb and any other members of the BRM group. The 1996 U.S. Option Plan may be
administered by the Board or a committee designated by the Board. BackWeb is no
longer granting options under the 1996 U.S. Option Plan.

Options granted under the 1996 U.S. Plan generally vest over a four-year
period. Each option granted under the 1996 U.S. Plan may expire not later than
seven years from the date of the grant. The Board may amend or modify the plan
in all respects, except that no amendment or modification shall adversely affect
the rights of plan participants. In the event of a merger or sale all options
will be assumed by the successor corporation or fully vested for a period of 15
days, after which the options will expire. The 1996 U.S. Option Plan will
terminate on November 1, 2006, unless terminated earlier in accordance with its
provisions.

1998 U.S. OPTION PLAN

Our 1998 U.S. Option Plan provides for the grant of incentive stock options
to employees and nonstatutory stock options and share purchase rights to
employees, directors and consultants. The number of shares reserved for issuance
under this plan will be subject to an annual increase on each anniversary
beginning July 1, 2000 equal to the lesser of (a) 1,400,000 shares, (b) 3% of
the outstanding shares on such date or (c) an amount determined by the Board. We
are currently contemplating an additional increase in the 1998 U.S. Option Plan
in an amount of approximately 3% of our outstanding shares. The board may
determine to allocate substantially all of these shares to our senior management
as an incentive to continue their services. We have not yet determined whether
we will pursue this increase in our 1998 U.S. Option Plan, and if we do decide
to pursue this increase, it will be subject to the approval of our board and
shareholders. The 1998 U.S. Option Plan is currently administered by the Board
of Directors, although the Board may designate certain committees to administer
the 1998 U.S. Option Plan with respect to different groups of service providers.

Options and share purchase rights granted under the 1998 U.S. Option Plan
will vest as determined by the relevant administrator, and if not assumed or
substituted by a successor corporation will accelerate and become fully vested
in the event of an acquisition of BackWeb. The exercise price of options and
share purchase rights granted under the 1998 U.S. Option Plan will be as
determined by the relevant administrator, although the exercise price of
incentive stock options must be at least equal to the fair market value of our
ordinary shares on the date of grant. Options granted under the 1998 U.S. Option
Plan generally vest over a four-year period. The Board of Directors may amend,
modify or terminate the 1998 U.S. Option Plan at any time as long as such
amendment, modification or termination does not impair vesting rights of plan
participants.

39
<PAGE> 43

The 1998 U.S. Option Plan will terminate in 2008, unless terminated earlier by
the Board of Directors.

1999 EMPLOYEE STOCK PURCHASE PLAN

Our 1999 Employee Stock Purchase Plan, or the Purchase Plan, provides our
employees with an opportunity to purchase our ordinary shares through
accumulated payroll deductions. A total of 600,000 ordinary shares have been
reserved for issuance under the Purchase Plan, none of which have been issued.
The number of shares reserved for issuance under the Purchase Plan will be
subject to an annual increase on each anniversary beginning July 1, 2000 equal
to the lesser of (a) 833,333 shares, (b) 2% of the outstanding shares on such
date or (c) an amount determined by the Board. The Purchase Plan will be
administered by the Board of Directors or by a committee appointed by the Board.
The Purchase Plan permits eligible employees to purchase ordinary shares through
payroll deductions of up to 15% of an employee's compensation, up to a maximum
of $25,000 for all purchases ending within the same calendar year. Employees are
eligible to participate if they are employed by BackWeb for at least 20 hours
per week and more than five months in any calendar year. Unless the Board of
Directors or its committee determines otherwise, each offering period will run
for six months. New offering periods commence on March 1 and September 1. In the
event of an acquisition of BackWeb, each outstanding option shall be assumed or
an equivalent option substituted by the successor corporation. In the event that
the successor corporation refuses to assume or substitute for the option, the
offering period then in progress will be shortened by setting a new exercise
date. The price at which ordinary shares will be purchased under the Purchase
Plan is equal to 85% of the fair market value of the ordinary shares on the
first or last day of the applicable offering period, whichever is lower.
Employees may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. Generally, the
Board may amend, modify or terminate the Purchase Plan at any time as long as
such amendment, modification or termination does not impair the rights of plan
participants. The Purchase Plan will terminate in 2009, unless terminated
earlier in accordance with its provisions.

40
<PAGE> 44

RELATED PARTY TRANSACTIONS

RELATIONSHIP WITH BRM

In 1995, we signed an agreement with EliBarkat Holdings Ltd., a company
controlled by Eli Barkat, BackWeb's Chairman of the Board and Chief Executive
Officer, NirBarkat Holdings Ltd., a company controlled by Nir Barkat, BackWeb's
former Chairman of the Board, and Yuval 63 Holdings (1995) Ltd., a company
controlled by Yuval Rakavy, a former director of BackWeb. In accordance with the
terms of this agreement, these three companies loaned BackWeb an aggregate of
$500,000. The loan is denominated in NIS and is payable at a rate of 2.5% of
cumulative consolidated revenues in excess of $5,000,000.

Eli Barkat, Nir Barkat and Yuval Rakavy historically have provided BackWeb
with management and administrative services, through companies controlled by
them in return for fees and reimbursement of expenses. Aggregate amounts
incurred for these services were approximately $540,000, $516,000, and $220,000
during the years ended December 31, 1996, 1997, and 1998 respectively. For the
year ended December 31, 1999, we did not pay any fees or incur any expenses for
these services. Effective September 30, 1996, $748,000 of accounts payable to
the three companies for their services were converted into a loan with terms
substantially similar to those of the $500,000 loan.

As of September 1998, Eli Barkat became a full-time employee of BackWeb and
began to receive his full compensation as an officer from BackWeb. As of March
1999, BackWeb terminated its service arrangements with the companies controlled
by Nir Barkat and Yuval Rakavy. As of December 31, 1999, $823,000 remained
outstanding under the two loans after reflecting currency conversion adjustments
and repayment.

BackWeb historically has paid to BRM Technologies Ltd., a company
controlled by Eli Barkat, Nir Barkat and Yuval Rakavy through their holding
companies, fees for research and development services on the basis of cost plus
15% and expenses at cost. Amounts incurred for these services were approximately
$1.2 million, $873,000 during and $235,000 for the years ended December 31,
1997, 1998 and 1999.

BackWeb has exclusive ownership of all technology developed by BRM
Technology Ltd. for BackWeb and by BRM Technology Ltd.'s employees contracted to
BackWeb.

EliBarkat Holdings Ltd., NirBarkat Holdings Ltd. and Yuval 63 Holdings
(1995) Ltd. agreed that in connection with our Series A Preferred Stock
financing they would:

- purchase shares of our Series A Preferred Stock; and

- forego their right to acquire additional shares of our Series A Preferred
Stock in exchange for the right to designate employees and consultants of
BRM Technologies Ltd. as beneficiaries of options to acquire up to
792,167 ordinary shares of BackWeb under our 1996 Israeli Option Plan,
all of which have been granted.

RELATIONSHIP WITH DELIVEREX, INC.

Some of our major shareholders currently own interests in DeliverEx, Inc.
These shareholders include EliBarkat Holdings Ltd., NirBarkat Holdings Ltd.,
Yuval 63 Holdings (1995) Ltd., BARE, L.L.C., a company controlled by Charles
Federman, who is a BackWeb director, affiliates of the Goldman Sachs Group, L.P.
and Intel Corporation. As a group, these shareholders have a controlling
interest in DeliverEx, Inc. In addition, Charles Federman currently serves as
the chairman of the board of directors of DeliverEx, Inc. and Joseph Gleberman,
one of our directors, also serves on the board of DeliverEx.

In September 1999, BackWeb Technologies Inc., our U.S. subsidiary, granted
a nonexclusive license to DeliverEx to use the BackWeb Foundation program for
users of DeliverEx's consumer-oriented DeliverEx Lite services in exchange for
payment of license fees and technical support services fees. In December 1999,
BackWeb Technologies Inc. granted an additional nonexclusive license to
41
<PAGE> 45

DeliverEx to use the BackWeb Foundation program for users of DeliverEx's
business-oriented DeliverEx Pro services in exchange for payment of license fees
and technical support services fees. DeliverEx will use the BackWeb Foundation
product to enable its customers to deliver digital data through the internet.

In addition, in December 1996, BackWeb Technologies Inc. and DeliverEx also
entered into a letter of intent to define the terms and conditions under which
DeliverEx would be granted the right to use the BackWeb Foundation program on a
royalty basis in the operation of its various web delivery services, including
the DeliverEx Lite service and the DeliverEx Pro service. These rights would be
granted subject to negotiation and execution of a definitive license agreement.
The letter of intent provides that DeliverEx would be able to use BackWeb
Foundation program to operate DeliverEx's web-based delivery services. Based on
the reported number of users, DeliverEx will pay BackWeb either a percentage of
the gross quarterly revenues attributable to these users or a minimum per user
royalty, whichever is greater. The letter of intent also provides that DeliverEx
shall have product development participation and support rights. The letter of
intent and execution of definitive agreements is subject to approval and
ratification by our board of directors, the audit committee of the board of
directors and our shareholders.

In February 2000, BackWeb entered into a stock purchase agreement and other
related agreements with DeliverEx to acquire shares of DeliverEx preferred stock
in amount equal to 10% of the outstanding shares of DeliverEx on a fully diluted
basis. This agreement is subject to the approval of our shareholders.

SALE OF SERIES D PREFERRED STOCK

Between December 1997 and March 1999, BackWeb sold its Series D Preferred
Stock in a series of private transactions with a number of investors, including
holding companies controlled by Eli Barkat, Nir Barkat and Yuval Rakavy, and
investment partnerships of which affiliates of The Goldman Sachs Group, L.P., an
affiliate of Goldman Sachs, lead manager of this offering, are general partners,
managing general partner or investment manager. The holding companies controlled
by Eli Barkat, Nir Barkat and Yuval Rakavy each purchased 1,619,073 shares of
Series D Preferred Stock. Upon closing of this offering, each block of 1,619,073
Series D Preferred Stock will convert into 539,691 ordinary shares. Investment
partnerships of which affiliates of The Goldman Sachs Group, L.P., an affiliate
of Goldman Sachs, lead manager of this offering, are general partners, managing
general partner or investment manager purchased 2,818,030 shares of Series D
Preferred Stock, which upon the closing of this offering converts into 939,343
ordinary shares. In January 1998, BancAmerica Robertson Stephens, an affiliate
of BancBoston Robertson Stephens Inc., one of the underwriters in this offering,
participated as the placement agent for the Series D Preferred Stock.

REGISTRATION RIGHTS AGREEMENT

The holders of 25,685,739 ordinary shares have rights to register those
shares under the Securities Act pursuant to registration rights agreements.
Holders of these registrable shares have unlimited rights to request that these
shares be included in any BackWeb-initiated underwritten public offering of our
securities. The underwriters may reduce the registrable shares to be included on
the registration statement for marketing reasons. In addition, at any time on or
prior to the earlier of December 27, 2002 or six months after the effective date
of our initial public offering, holders of a majority of the registrable shares
may demand that we register these shares up to two times. Also, one year after
we become a public reporting company, holders of registrable shares may request
that we effect a registration of these shares on a shelf registration statement
once in any twelve-month period. All expenses incurred in connection with such
registrations, other than underwriters' and brokers' discounts and commissions,
will be borne by BackWeb.

42
<PAGE> 46

LOANS TO OFFICERS

In March 1999, we loaned Eli Barkat, our Chief Executive Officer,
$2,026,500 pursuant to a promissory note for the exercise of his stock options
at an annual interest rate of 5.25%. The note is secured in part by a pledge of
Mr. Barkat's ordinary shares and is payable in installments over the next four
years.

In March 1999, we loaned Hanan Miron, our Chief Financial Officer, $475,000
pursuant to a promissory note for the exercise of his stock options at an annual
interest rate of 5.25%. The note is secured in part by a pledge of Mr. Miron's
ordinary shares and is payable in installments over the next four years.

In March 1999, we loaned Gwen Spertell, our Senior Vice President, Sales,
Marketing and Business Development, $443,138 pursuant to a promissory note for
the exercise of her stock options at an annual interest rate of 5.25%. The note
is secured in part by a pledge of Ms. Spertell's ordinary shares and is payable
in installments over the next four years.

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<PAGE> 47

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the beneficial
ownership of our ordinary shares as of March 27, 2000 and as adjusted to reflect
the sale of ordinary shares offered by us in this offering, for:

- each person known by us to beneficially own more than 5% of the
outstanding ordinary shares;

- each of our officers;

- each of our directors; and

- all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities.

Except as indicated below, the address for each listed director and officer
is c/o BackWeb Technologies Ltd., 3 Abba Hillel Street, Ramat Gan, Israel.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all ordinary shares shown as beneficially
owned by them. The number of ordinary shares outstanding used in calculating the
percentage in the table below includes the ordinary shares underlying options or
warrants held by such person that are exercisable within 60 days of March 31,
1999, but excludes ordinary shares underlying options or warrants held by any
other person. Percentage of beneficial ownership is based on 37,010,502 ordinary
shares outstanding as of March 27, 2000.

44
<PAGE> 48

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
ORDINARY SHARES ORDINARY SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------- ------------------ ------------------
<S> <C> <C>
5% SHAREHOLDERS
Yuval 63 Holdings (1995) Ltd......................... 3,352,342 9.1%
c/o BRM Technologies, Ltd.
P.O. Box 45065
5 Kiryat Madas Har Hotzvim
Jerusalem 91450 Israel
Nir Barkat Holdings Ltd. ............................ 3,352,342 9.1%
c/o BRM Technologies, Ltd.
P.O. Box 45065
5 Kiryat Madas Har Hotzvim
Jerusalem 91450 Israel
United States Trust Company of New York.............. 3,272,677 8.9%
West 47th Street, 25th Floor
New York, New York 10036
The Goldman Sachs Group.............................. 3,272,676 8.9%
85 Broad Street
New York, New York 10004
EXECUTIVE OFFICERS AND DIRECTORS
Eli Barkat........................................... 3,702,342 10.0%
Joseph Gleberman..................................... 3,272,676 8.9%
Charles Federman..................................... 768,264 2.1%
Hanan Miron.......................................... 316,666 *
Gwen Spertell........................................ 313,147 *
Roni Or.............................................. 62,013 *
William Larson....................................... 38,889 *
Gil Shwed............................................ 25,000 *
All executive officers and directors as a group (8
persons)........................................... 8,498,997 23.0%
</TABLE>

- -------------------------
Yuval Rakavy, a former BackWeb director, owns substantially all of the
equity and voting power of Yuval Rakavy Ltd., the parent company of Yuval
63 Holdings (1995) Ltd.

Nir Barkat, a former Backweb director, owns substantially all of the
equity and voting power of Nir Barkat Ltd., the parent company of NirBarkat
Holdings Ltd. Nir Barkat is the brother of Eli Barkat, our Chief Executive
Officer.

The shares listed in the table above represent 3,272,676 shares owned by
investment partnerships, of which affiliates of The Goldman Sachs Group are
the general partner, managing general partner or investment manager,
including:

- 1,955,591 ordinary shares held by GS Capital Partners II, L.P.;

- 777,427 ordinary shares held by GS Capital Partners II Offshore, L.P.;

- 72,132 ordinary shares held by Goldman, Sachs & Co. Verwaltungs GmbH;

- 278,594 ordinary shares held by Stone Street Fund 1996, L.P.; and

- 188,932 ordinary shares held by Bridge Street Fund 1996, L.P.

The Goldman Sachs Group disclaims beneficial ownership of the shares
owned by such investment partnerships to the extent attributable to
partnership interests therein held by persons other than The Goldman Sachs
Group and its affiliates. Each of such investment

45
<PAGE> 49

partnerships shares voting and investment power with certain of its
respective affiliates. Mr. Gleberman, a Managing Director of Goldman, Sachs
& Co. and a director of BackWeb, disclaims beneficial ownership of ordinary
shares which may be deemed to be beneficially owned by The Goldman Sachs
Group except to the extent of his pecuniary interest arising from his
interest in The Goldman Sachs Group.

The shares listed in the table above for all executive officers and
directors as a group include 1,836,900 ordinary shares held by executive
officers and directors subject to the right of repurchase in favor of
BackWeb during a vesting period of four years and 200,346 ordinary shares
held by executive officers and directors subject to options which are
exercisable within 60 days of March 31, 1999.

The shares listed in the table above for Joseph Gleberman include
3,272,676 shares held by entities affiliated with the Goldman Sachs Group.
Mr. Gleberman is a Managing Partner of Goldman Sachs & Co.

The shares listed in the table above for Charles Federman include 539,691
shares held by Bare LLC, an entity substantially controlled by Charles
Federman.

The shares listed in the table above for Hanan Miron include vested but
unexercised options to purchase 138,333 ordinary shares.

The shares listed in the table above for Roni Or represent vested but
unexercised options to purchase 62,013 ordinary shares.

46
<PAGE> 50

SELLING SHAREHOLDERS

The following table sets forth as of the date of this prospectus, the name
of each of the selling shareholders, the number of shares of common stock that
each selling shareholder owns, the number of shares of common stock owned by
each selling shareholder that may be offered for sale from time to time by this
prospectus, and the number of shares of common stock to be held by each selling
shareholder assuming the sale of all the common stock offered hereby.
The selling shareholders are former or current shareholders of BackWeb
Canada, Inc., our Canadian subsidiary, and certain shareholders entitled to
registration rights. We may amend or supplement this prospectus from time to
time to update the disclosure set forth herein.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)
-------------------- SHARES BEING -------------------
NAME OF SELLING SHAREHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------- --------- ------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
1247582 Ontario Ltd............................... 55,713 * 55,713 0 *
Altamira Management Ltd.(2)....................... 31,517 * 31,517 0 *
Amaranth Resources Ltd.(2)........................ 100,140 * 100,140 0 *
Amato, Albert..................................... 58,481 * 58,481 0 *
Barford, Jean..................................... 711 * 711 0 *
Bitahon Ltd. ..................................... 120,140 * 120,140 0 *
Brant & Co. ...................................... 746,433 746,433 0 *
Busch, Randy...................................... 1,554 * 1,554 0 *
Nippon Investment & Finance Co. Ltd............... 89,082 * 89,082 0 *
Morell, Glen...................................... 10,663 * 10,663 0 *
Protege Software (Holdings) Ltd................... 142,214 142,214 0 *
Roytor & Co. ..................................... 15,995 15,995 0 *
Sampaleanu, Colin................................. 14,217 * 14,217 0 *
Silver, Jennifer.................................. 7,109 * 7,109 0 *
Turner, Lee....................................... 9,007 * 9,007 0 *
Vidov, Mark....................................... 2,844 * 2,844 0 *
Wu, Dennis........................................ 21,327 * 21,327 0 *

SHARES TO BE DISTRIBUTED BY TRINITY VENTURES V,
L.P.
Limited Partners:
- --------------------------------------------------
Fremont Sequoia Holdings.......................... 29,746 * 29,746 0 *
Crescent Intl Holdings............................ 4,958 * 4,958 0 *
Harbourvest VI Ltd. .............................. 4,958 * 4,958 0 *
Bradley Holdings, Ltd............................. 1,983 * 1,983 0 *
Miami Corporation................................. 1,983 * 1,983 0 *
Big Trees......................................... 1,242 * 1,242 0 *
Diane Wilsey...................................... 246 * 246 0 *
Union Insurance................................... 1,498 * 1,487 0 *
Capital Asia...................................... 1,339 * 1,339 0 *
Carrara Venture Fund.............................. 991 * 991 0 *
Ciocca Living Trust............................... 991 * 991 0 *
CI Venture Capital................................ 991 * 991 0 *
Hallco............................................ 991 * 991 0 *
Henry Living Trust................................ 991 * 991 0 *
Hitachi........................................... 991 * 991 0 *
Suwannukul Family Trust........................... 991 * 991 0 *
Bank of Tokyo..................................... 991 * 991 0 *
Ohawine Trust..................................... 654 * 654 0 *
Thanksgiving Foundation........................... 654 * 654 0 *
W. Andrew Beckstoffer............................. 496 * 496 0 *
</TABLE>

47
<PAGE> 51

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)
-------------------- SHARES BEING -------------------
NAME OF SELLING SHAREHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------- --------- ------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Donald Chase Doolittle............................ 496 * 496 0 *
Rod & Connie Georgiu.............................. 496 * 496 0 *
Edith Stern Trust................................. 496 * 496 0 *
Peter Stott....................................... 496 * 496 0 *
Sutro Group....................................... 496 * 496 0 *
Rees Family Trust................................. 397 * 397 0 *
Pente Venture Trust............................... 332 * 332 0 *
Cameron Trust..................................... 327 * 327 0 *
Brian Aspland..................................... 248 * 248 0 *
Michael & Yvonne Deggelman........................ 248 * 248 0 *
Herbert M. Dwight, Trustee........................ 248 * 248 0 *
Richard Frank Living Trust........................ 248 * 248 0 *
Kevin E. Grant.................................... 248 * 248 0 *
Herst Family Trust................................ 248 * 248 0 *
Laval Family Trust................................ 248 * 248 0 *
Paul Lego......................................... 248 * 248 0 *
Harold Naparst.................................... 248 * 248 0 *
John O'Donnell IRA Rollover....................... 248 * 248 0 *
Quinn Family Trust................................ 248 * 248 0 *
Shapiro Family Trust.............................. 248 * 248 0 *
George O. Sheldon Trust........................... 248 * 248 0 *
James Simpson..................................... 248 * 248 0 *
Maurice Werdegar.................................. 248 * 248 0 *
Wayne and Judith Earl Trust....................... 248 * 248 0 *
Woodside Electronics Trust........................ 248 * 248 0 *

General Partners:
Fremont Sequoia Holdings.......................... 2,577 * 2,577 0 *
Lederer-Orr Trust................................. 4,294 * 4,294 0 *
Fenton Family 1994 Trust.......................... 4,294 * 4,294 0 *
Shennan 1995 Trust................................ 4,294 * 4,294 0 *
Francis-Matlock Trust............................. 1,288 * 1,288 0 *
Augustus Tai...................................... 429 * 429 0 *
TVL Management Corp............................... 7 * 7 0 *

SHARES TO BE DISTRIBUTED BY TRINITY SIDE-BY-SIDE
FUND, L.P.
Limited Partners:
Fremont TVL V Partners............................ 2,009 * 2,009 0 *
Nierenberg Family Trust........................... 179 * 179 0 *
Judy Wunderlich Trust............................. 65 * 65 0 *
Michele A. Valentine.............................. 7 * 7 0 *
Lederer-Orr Trust................................. 789 * 789 0 *
Fenton 1994 Trust................................. 538 * 538 0 *
Shennan Family Partnership........................ 610 * 610 0 *
Francis-Matlock Trust............................. 108 * 108 0 *

General Partners:
Lederer-Orr Trust................................. 11 * 11 0 *
Fenton 1994 Trust................................. 11 * 11 0 *
Shennan 1995 Trust................................ 11 * 11 0 *
Francis-Matlock Trust............................. 3 * 3 0 *
</TABLE>

48
<PAGE> 52

- ---------------
* Less than 1%.

(1) Based on 37,010,502 shares outstanding as of March 27, 2000.

49
<PAGE> 53

PLAN OF DISTRIBUTION

The shares covered by this prospectus may be offered and sold from time to
time by the selling shareholders. The selling shareholders will act
independently of BackWeb in making decisions with respect to the timing, manner
and size of each sale. The selling shareholders may sell the shares being
offered by this prospectus on the Nasdaq National Market, or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price, at varying prices or at negotiated prices. The shares offered by
this prospectus may be sold, without limitation, by one or more of the following
means of distribution: (a) a block trade in which the broker-dealer so engaged
will attempt to sell such shares as agent, but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by such broker-dealer for its own account
pursuant to this prospectus; (c) an over-the-counter distribution in accordance
with the rules of the Nasdaq National Market; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (e)
in privately negotiated transactions. To the extent required, this prospectus
may be amended and supplemented from time to time to describe a specific plan of
distribution.

In connection with distributions of the shares offered hereby or otherwise,
the selling shareholders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of
BackWeb's ordinary shares in the course of hedging the positions they assume
with selling shareholders. The selling shareholders may also sell BackWeb's
ordinary shares short and deliver the shares offered hereby to close out such
short positions. The selling shareholders may also enter into option or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or other financial institution of shares
offered hereby, which shares such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction). The selling shareholders may also pledge the shares offered
hereby to a broker-dealer or other financial institution, and, upon a default,
such broker-dealer or other financial institution, may effect sales of the
pledged shares pursuant to this prospectus (as supplemented or amended to
reflect such transaction). In addition, any shares offered hereby that qualify
for sale pursuant to Rule 144 may, at the option of the holder thereof, be sold
under Rule 144 rather than pursuant to this prospectus.

Any broker-dealer participating in such transactions as agent may receive
commissions from the selling shareholder and/or purchasers of the shares offered
by this prospectus (and, if it acts as agent for the purchaser of such shares,
from such purchaser). Usual and customary brokerage fees will be paid by the
selling shareholder. Broker-dealers may agree with the selling shareholder to
sell a specified number of shares at a stipulated price per share, and, to the
extent such a broker-dealer is unable to do so acting as agent for the selling
shareholder, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment to the selling shareholder. Broker-dealers
who acquire shares as principal may thereafter resell such shares from time to
time in transactions (which may involve cross and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales, may pay to or receive
from the purchasers of such shares commissions computed as described above.

To comply with the securities laws of certain states, if applicable, the
shares offered hereby will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the shares
offered hereby may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from
50
<PAGE> 54

the registration or qualification requirement is available and is complied with.

We have advised the selling shareholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of the shares offered
hereby in the market and to the activities of the selling shareholders and their
affiliates. In addition, we will make copies of this prospectus available to the
selling shareholders and have informed them of the need for delivery of copies
of this prospectus to purchasers at or prior to the time of any sale of the
shares offered hereby. The selling shareholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.

At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.

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<PAGE> 55

DESCRIPTION OF SHARE CAPITAL

DESCRIPTION OF SHARES

Set forth below is a summary of the material provisions governing our share
capital. This summary is not complete and should be read together with our
memorandum of association and articles of association, a copy of each of which
has been filed as an exhibit to the registration statement of which this
prospectus forms a part.

Our authorized share capital consists of 200,067,829 shares, NIS 0.03
nominal value per share (except for the Series E Preferred Share, which has a
nominal value of NIS 0.01 per share), including 150,067,829 ordinary shares, 50
million preferred shares and one Series E Preferred Share. For a description of
the Series E Preferred Share, please see "-- Description of Preferred Stock" on
the next page. As of March 27, 2000, there were 37,010,502 ordinary shares
issued and outstanding.

DESCRIPTION OF ORDINARY SHARES

All issued and outstanding ordinary shares of BackWeb are, and the ordinary
shares offered hereby when issued and paid for will be, duly authorized and
validly issued, fully paid and non-assessable. The ordinary shares do not have
preemptive rights. Neither the memorandum of association or articles of
association of BackWeb nor the laws of the State of Israel restrict in any way
the ownership or voting of ordinary shares by non-residents of Israel, except
with respect to subjects of countries which are in a state of war with Israel.

DIVIDEND AND LIQUIDATION RIGHTS

The ordinary shares offered by this prospectus, when issued, will be
entitled to the full amount of any cash or share dividend declared from the date
of the consummation of this offering. Subject to the rights of the holders of
shares with preferential or other special rights that may be authorized, the
holders of ordinary shares are entitled to receive dividends out of legally
available assets and, in the event of the winding up of BackWeb, to share
ratably in all assets remaining after payment of liabilities, subject to
applicable law. The board of directors may declare interim dividends and
recommend a final annual dividend from retained earnings available for cash
dividends as determined for statutory purposes at such times and in such amounts
as the board of directors may determine. Declaration of the final annual
dividend requires shareholder approval at a general meeting, which may reduce
but not increase such dividend from the amount recommended by the board of
directors.

In case of a share dividend, holders of shares can receive shares of a
class whether such class existed prior thereto or was created therefor or shares
of the same class that conferred upon the holders the right to receive such
dividend.

VOTING, SHAREHOLDER MEETINGS AND RESOLUTIONS

Holders of ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. Such rights may be affected by
the future grant of any special voting rights to the holders of a class of
shares with preferential rights. Any change in the registered capital of
BackWeb, which does not include the issuance of registered but unissued shares,
including the creation of a new class of shares with rights superior or inferior
to existing classes of shares may be adopted by a "special resolution." A
special resolution is the resolution of the holders of 75% or more of the shares
participating in a general meeting.

An annual general meeting shall be held once every calendar year at such
time, but not later than 15 months after the last annual general meeting, and at
such place, either within or outside of the State of Israel, as may be
determined by the board of directors. The quorum required for a general meeting
of shareholders consists of at least two shareholders present in person or by
proxy and holding, or representing, more than fifty percent of the voting rights
of the issued share capital. A meeting adjourned for lack of a quorum may be
adjourned to the same day in
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the next week at the same time and place, or to such time and place as the
chairman of the meeting may determine with the consent of the holders of a
majority of the shares present in person or by proxy and voting on the question
of adjournment. At such adjourned meeting, any two shareholders present in
person or by proxy will constitute a quorum.

Most shareholder resolutions, including resolutions for the election of
directors, the declaration of dividends, the appointment of auditors or the
approval of transactions with office holders as required by the Companies
Ordinance will be deemed adopted if approved by the holders of a majority of the
voting power represented at the meeting, in person or by proxy, and voting
thereon. Certain corporate actions such as:

- amending the articles of association;

- amending the memorandum of association;

- changing our name;

- making changes in our capital structure such as a reduction of capital,
increase of capital or share split;

- merger or consolidation;

- voluntary winding up; and

- authorizing a new class of shares or changing special rights of a class
of shares

must be approved by a "special resolution" and will be deemed adopted only if
approved by the voting power represented in person or by proxy at the meeting
and voting thereon.

Under the new Israeli Companies Law, which took effect on February 1, 2000,
our shareholders are entitled to amend our articles of association to eliminate
the distinction between ordinary resolutions and special resolutions. An
amendment to eliminate this distinction requires the adoption of a special
resolution, but thereafter all resolutions can be adopted by a simple majority.
Currently, there is no proposal to amend our articles of association to
eliminate the distinction between ordinary resolutions and special resolutions.

TRANSFER OF SHARES AND NOTICES

Fully paid ordinary shares are issued in registered form and may be
transferred freely. Each shareholder of record is entitled to receive at least
21 days' prior notice of shareholder meetings. Under the Company's Articles of
Association, a record date for the purpose of determining the shareholders
entitled to notice and to vote at such meeting, may not be fixed before 90 days
prior to the date of the meeting. Proposed regulations under the Companies Law
would provide that the record date must be between four and 35 days prior to the
date of the meeting.

MODIFICATION OF CLASS RIGHTS

If at any time the share capital is divided into different classes of
shares, the rights attached to any class, unless otherwise provided by our
articles of association, may be modified or abrogated by BackWeb by a special
resolution subject to the consent in writing of the holders of the issued shares
of the class, or with the adoption of a special resolution passed at a separate
general meeting of the holders of the shares of such class.

DESCRIPTION OF PREFERRED STOCK

BackWeb has one share of Series E Preferred Stock outstanding. In
connection with our acquisition of Lanacom, Inc., a Canadian company, in August
1997, we are obligated to issue to the former Lanacom shareholders an aggregate
of 2,595,501 ordinary shares in exchange for the exchangeable shares in BackWeb
Canada held by the former Lanacom shareholders at any time, at the election of
the holders thereof, into our ordinary shares. The share of Series E Preferred
Stock was issued to a trustee for the former Lanacom shareholders pursuant to a
Voting and Exchange Trust Agreement. Under this agreement, the exchangeable
shareholders are entitled to exercise voting rights equivalent to voting rights
attaching to the same number of ordinary shares by and through the trustee of
the share of Series E Preferred Stock. The share of Series E Pre-

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ferred Stock will be canceled at such time that no exchangeable shares are held
by the former Lanacom shareholders. The exchangeable share structure is a common
tax-advantageous structure used in acquisitions of Canadian companies.

BackWeb has an additional 50 million preferred shares authorized. The board
of directors has the authority to issue the preferred shares without further
vote or action by the shareholders in one or more series and to fix the rights,
preferences, privileges and restrictions of the preferred shares, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series. If the board of directors issues preferred shares, this
may delay, defer or prevent a change in control of BackWeb without further
action by the shareholders. For example, the board of directors could issue
preferred shares that have the power to prevent a change of control transaction.
The issuance of preferred shares with voting and conversion rights may adversely
affect the voting power of the holders of ordinary shares, including the loss of
voting control to others. BackWeb currently has no plans to issue any of the
unissued preferred shares.

REGISTRATION RIGHTS

The holders of 25,685,739 ordinary shares have rights to register those
shares under the Securities Act pursuant to registration rights agreements.
Holders of these registrable shares have unlimited rights to request that these
shares be included in any BackWeb-initiated underwritten public offering of our
securities. The underwriters may reduce the registrable shares to be included on
the registration statement for marketing reasons. In addition, at any time the
earlier of December 27, 2002 or six months after June 7, 1999 holders of a
majority of the registrable shares may demand that we register these shares up
to two times. Also, one year after we become a public reporting company, holders
of registrable shares may request that we effect a registration of these shares
on a shelf registration statement once in any twelve-month period.

In addition, we agreed to register the resale of the ordinary shares
issuable upon the exchange of the exchangeable shares held by the former
shareholders of Lanacom, Inc. pursuant to this prospectus. All expenses incurred
in connection with such registrations, other than underwriters' and brokers'
discounts and commissions, will be borne by BackWeb.

ANTI-TAKEOVER EFFECTS OF ISRAELI LAWS

The Israeli Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% shareholder of the company, unless
there is a 50% shareholder of the company. These rules do not apply if the
acquisition is made by way of a merger. Regulations promulgated under the
Companies Law provide that these tender offer requirements do not apply to
companies whose shares are listed for trading outside of Israel if, according to
the law in the country in which the shares are traded, including the rules and
regulations of the stock exchange on which the shares are traded, either:

- there is a limitation on acquisition of any level of control of the
company, or

- the acquisition of any level of control requires the purchaser to do so
by means of a tender offer to the public.

Finally, Israeli tax law treats specified acquisitions, including a
stock-for-stock swap between an Israeli company and a foreign company, less
favorably than does U.S. tax law. For example, Israeli tax law may subject a
shareholder who exchanges his ordinary shares for shares in a foreign
corporation to immediate taxation.
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ACCESS TO INFORMATION

We file reports with the Israeli Registrar of Companies regarding our
registered address, our registered capital, our shareholders of record and the
number of shares held by each, the identity of the directors and details
regarding security interests on our assets. In addition, we must file with the
Registrar of Companies our articles of association and a copy of any special
resolution adopted by a general meeting of shareholders. The information filed
with the Registrar of Companies is available to the public. In addition to the
information available to the public, our shareholders are entitled, upon
request, to review and receive copies of all minutes of meetings of our
shareholders.

TRANSFER AGENT AND REGISTRAR

BackWeb has appointed American Stock Transfer and Trust Company as the
transfer agent and registrar for the ordinary shares.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes the material United States federal income
tax considerations relating to an investment in ordinary shares as of the date
hereof. The summary is based on the Internal Revenue Code of 1986, and existing
final, temporary and proposed Treasury Regulations, administrative rulings and
judicial decisions, all of which are subject to prospective and retroactive
changes. We will not seek a ruling from the Internal Revenue Service, or the
IRS, with regard to the United States federal income tax treatment of an
investment in ordinary shares and there can be no assurance that the IRS will
agree with the conclusions set forth below. The summary does not purport to
address all federal income tax considerations that may be relevant to a
particular investor. We urge you to consult your own tax advisor regarding your
specific tax situation. For example, the summary applies only to holders who
hold ordinary shares as a capital asset within the meaning of Section 1221 of
the Code, and does not address the tax consequences that may be relevant to
investors in special tax situations including, for example:

- insurance companies,

- tax-exempt organizations,

- dealers in securities or currency,

- banks or other financial institutions,

- investors that hold ordinary shares as part of a hedge, straddle,
conversion, constructive sale or similar transaction,

- holders that own, directly or indirectly, ten percent or more, by vote or
value, of our outstanding ordinary shares.

Further, it does not address the alternative minimum tax consequences of an
investment in ordinary shares or the indirect consequences to holders of equity
interests in entities that own ordinary shares. In addition, this summary does
not address the state, local and foreign tax consequences of an investment on
the ordinary shares. Except as specifically noted, the disclosure assumes, when
it refers to non-U.S. holders, that income or gain received by a non-U.S. holder
in connection with an investment in ordinary shares will not be treated as
effectively connected with a U.S. trade or business.

For purposes of this discussion, "U.S. holder" means a holder of ordinary
shares that is:

- a citizen or resident of the United States,

- a partnership or corporation created or organized in or under the laws of
the United States or any State thereof, including the District of
Columbia,

- an estate, the income of which is subject to United States federal income
tax regardless of its source or a trust if (a) a court within the United
States is able to exercise primary supervision over its administration
and one or more United States persons have the authority to control all
substantial decisions of the trusts, or (b) the trust was in existence on
August 20, 1996 and has properly elected to be treated as a domestic
trust.

The term "non-U.S. holder" refers to any holder of ordinary shares other
than a U.S. holder.

TAXATION OF U.S. HOLDERS

DISTRIBUTIONS ON ORDINARY SHARES

Distributions made by us with respect to ordinary shares generally will
constitute taxable dividends for federal income tax purposes. These
distributions will be taxable to a U.S. holder as ordinary income to the extent
of our undistributed current or accumulated earnings and profits (as determined
for United States federal income tax purposes). Distributions in excess of
current or accumulated earnings and profits will be treated first as a
non-taxable return of capital which will reduce the U.S. holder's tax basis in
the ordinary shares. Any such distributions in excess of a U.S. holder's tax
basis in the ordinary shares will be treated as capital gain to the U.S. holder
and will be either long-term or short-term capital gain depending upon the U.S.
holder's federal income tax holding period for the ordinary shares.

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Dividends paid by us generally will not be eligible for the dividends
received deduction available to certain United States corporate shareholders
under Code Sections 243 and 245.

The amount of any cash distribution paid in a foreign currency will equal
the U.S. dollar value of the distribution, calculated by reference to the
exchange rate in effect on the day the dividends are received. A U.S. holder
should not recognize any foreign currency gain or loss if such foreign currency
is converted into U.S. dollars on the day received (i.e., at the exchange rate
used to determine the U.S. dollar value of the distribution). If a U.S. holder
does not convert the foreign currency into U.S. dollars on the date of receipt,
however, such holder may recognize gain or loss upon a subsequent sale or other
disposition of the foreign currency (including an exchange of the foreign
currency for U.S. dollars). Such foreign currency gain or loss, if any, will be
U.S. source ordinary income or loss for United States federal income tax
purposes.

Subject to certain conditions and limitations, including certain holding
period requirements, any Israeli withholding tax imposed upon any distributions
under United States income tax law should be eligible for credit against a U.S.
holder's federal income tax liability. Alternatively, a U.S. holder may claim a
deduction for such amount, but only for a year in which a U.S. holder elects to
do so with respect to all creditable foreign taxes. There is an overall
limitation on foreign taxes eligible for credit which is calculated separately
with respect to specific classes of income. For this purpose, dividends
distributed by us with respect to ordinary shares will generally constitute
"passive income" and will be treated as "foreign source" unless the 25%, 3 year
test described below under "Taxation of Non-U.S. Holders -- Distributions on
Ordinary Shares" is met.

SALE OR EXCHANGE OF ORDINARY SHARES

A U.S. holder of ordinary shares generally will recognize capital gain or
loss upon the sale or exchange of the ordinary shares measured by the difference
between the amount realized and the U.S. holder's tax basis in the ordinary
shares. Accordingly, gain or loss will be computed separately for each block of
shares sold (shares acquired separately at different times and prices). The gain
or loss on such disposition will be long term-capital gain or loss if the
selling U.S. holder has held the ordinary shares for more than one year. In
general, any capital gain or loss recognized by a U.S. holder upon the sale or
exchange of ordinary shares will be treated as United States source income or
loss, as the case may be, for United States foreign tax credit purposes. The
deductibility of capital losses is restricted and generally may only be used to
reduce capital gains to the extent thereof. However, individual taxpayers
generally may deduct annually $3,000 of capital losses in excess of their
capital gains.

PASSIVE FOREIGN INVESTMENT COMPANY

A foreign corporation generally will be treated as a "passive foreign
investment company," or PFIC, if, after applying certain "look-through" rules,
either

- 75% or more of its gross income for the taxable year is passive income or

- on average for the taxable year, by value, 50% or more of its assets
produce or are held for the production of passive income.

Passive income for this purpose generally includes items such as:

- dividends

- interest

- rents

- royalties and the excess of gains over losses from securities and
commodities transactions

The look-through rules provide in part that a foreign corporation that owns
at least 25%, by value, of a subsidiary will treat that proportion of the
subsidiary's assets and income as held or received directly by the foreign
parent.

We do not anticipate that we will be a PFIC in the future because we expect
that less than 75% of our annual gross income will be passive income and less
than 50% of our

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assets will be passive assets, based on the look-through rules, our current
income and assets and the manner in which we anticipate conducting our
businesses in the future. We do not believe we were a PFIC at the end of our
last fiscal year based upon our determination of our income and assets. However,
there can be no assurance that we are not or will not be treated as a PFIC in
the future.

If we were to be treated as a PFIC, all U.S. holders might be required, in
certain circumstances, to pay an interest charge together with tax calculated at
maximum rates on certain amounts treated as "excess distributions," including
any gain on the sale of ordinary shares. In order to avoid this tax
consequence, a U.S. holder

- may be permitted to make a "qualified electing fund" election, in which
case, in lieu of the treatment described in the previous sentence, the
U.S. holder would be required to include in its taxable income certain
undistributed amounts of our income and gain or

- may elect to mark-to-market the ordinary shares and recognize ordinary
income (or possible ordinary loss) each year with respect to such
investment and on the sale or other disposition of the ordinary shares.

Neither we nor our advisors has the duty to, or will undertake to, inform
U.S. holders of changes in circumstances that would cause us to become a PFIC.
U.S. holders should consult their own tax advisors concerning our status as a
PFIC. We do not currently intend to take any action necessary for a U.S. holder
to make a "qualified electing fund" election in the event we are determined to
be a PFIC.

FOREIGN PERSONAL HOLDING COMPANY

A foreign corporation may be classified as a foreign personal holding
company, or FPHC, for federal income tax purposes if both of the following tests
are satisfied:

- at any time during the taxable year five or fewer individuals who are
United States citizens or residents own or are deemed to own, under
certain attribution rules, more than 50% of its stock, by vote or value,
and

- at least 60%, or, in general, 50% for years subsequent to the year in
which it becomes a FPHC, of its gross income regardless of its source, as
specifically adjusted, is "foreign personal holding company income,"
which includes items such as dividends, interest, rents, royalties and
gain from the sale of stock or securities.

We do not believe that we are currently a FPHC nor do we anticipate that we
will be a FPHC in the future. However, no assurance can be given that we are not
or will not become a FPHC as a result of future changes of ownership or changes
in the nature of the income of BackWeb. If we were to be classified as a FPHC,
each U.S. holder would be required to include in income as a taxable
constructive dividend its pro rata share of our undistributed foreign personal
holding company income.

TAXATION OF NON-U.S. HOLDERS

DISTRIBUTIONS ON ORDINARY SHARES

In general, distributions by us to non-U.S. holders who are not engaged in
the conduct of a trade or business within the United States will be U.S. source
dividends subject to United States federal income tax only if 25% or more of our
gross income, from all sources for the three-year period ending with the close
of the taxable year preceding the declaration of the distribution, was
effectively connected with our conduct of a trade or business in the United
States. We do not anticipate engaging in the conduct of a trade or business
within the United States, except through our subsidiaries. However, if the 25%
threshold for such period is exceeded, a portion of any distribution paid by us
to a non-U.S. holder may be subject to U.S. tax and withholding at the rate of
30% or a lower rate if a tax treaty or other provision of law permits a lower
rate and such lower rate is properly claimed. The portion of the distribution
that may be subject to withholding will generally correspond to the portion of
our gross income for the period that is effectively connected to the conduct of
a trade or business within the United States.

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SALE OR EXCHANGE OF ORDINARY SHARES

Non-U.S. holders will not be subject to United States federal income tax on
any gain realized upon the sale or exchange of ordinary shares, unless

(i) in the case of gain recognized by an individual non-U.S. holder, such
individual is present in the United States for 183 days or more during
the taxable year of disposition and certain other conditions are
satisfied, or

(ii) in the case of gain recognized by an individual non-U.S. holder, such
individual is a former U.S. citizen who lost such citizenship during
the preceding ten-year period (or a former long-term permanent
resident who relinquished residency on or after February 6, 1995 and
within the preceding ten-year period) and whose loss of citizenship or
residency had as one of its principal purposes the avoidance of U.S.
tax.

If a non-U.S. holder falls under (i) above, the holder generally will be
subject to U.S. federal income tax at a rate of 30% (or a reduced treaty rate)
on the gain derived from the sale, and may be subject to withholding in certain
circumstances. If a non-U.S. holder falls under (ii) above, the holder will be
taxed on the net gain derived from the sale under the graduated U.S. federal
income tax rates that are applicable to U.S. citizens and resident aliens, and
may be subject to withholding under certain circumstances.

UNITED STATES TRADE OR BUSINESS

A non-U.S. holder engaged in a trade or business in the United States whose
income from the ordinary shares (including gain from the sale or exchange
thereof) is effectively connected with the conduct of such trade or business
will generally be subject to regular United States federal income tax on such
income in the same manner as if it were a U.S. holder. In addition, if such a
holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments, including adjustments for changes in U.S. net equity.

BACKUP WITHHOLDING

Distributions made by us with respect to the ordinary shares and gross
proceeds received from the disposition of the ordinary shares may be subject to
certain information reporting requirements to the IRS and to a 31% backup
withholding tax. Backup withholding generally will not apply, although
information reporting requirements may apply, to payments made to certain exempt
recipients such as a corporation or financial institution or to a holder who
furnishes a correct taxpayer identification number or provides a certificate of
foreign status and provides certain other required information. If backup
withholding applies, the amount withheld is not an additional tax, but is
credited against such holder's United States federal income tax liability,
provided that the credit is properly claimed.

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ISRAELI TAXATION AND INVESTMENT PROGRAMS

The following is a summary of the current tax laws of the state of Israel
as they relate to BackWeb and our shareholders. This summary does not discuss
all aspects of Israeli tax law that may be relevant to a particular investor in
light of his personal investment circumstances or to certain types of investor
subject to special treatment under Israeli law. The following also includes a
discussion of certain Israeli government programs benefiting various Israeli
businesses such as BackWeb. To the extent that the discussion is based on new
legislation yet to be subject to judicial or administrative interpretation,
there can be no assurance that the views expressed herein will accord with any
such interpretation in the future. This discussion is not intended and should
not be construed as legal or professional tax advice, and does not cover all
possible tax considerations.

GENERAL CORPORATE TAX STRUCTURE

The general corporate tax rate in Israel is 36%. However, the effective tax
rate payable by a Company which derives income from an "Approved Enterprise" may
be considerably lower. See "-- Law for the Encouragement of Capital Investments,
1959."

BackWeb's tax loss carry-forwards were approximately $30.0 million as of
December 31, 1998. The amount of BackWeb's tax loss carry-forwards will be
reduced by any future income of BackWeb that would be fully tax-exempt for a
defined period.

TAXATION UNDER INFLATIONARY CONDITIONS

The Income Tax Law (Adjustment for Inflation), 1985 attempts to overcome
some of the problems experienced in a traditional tax system by an economy
experiencing rapid inflation, which was the case in Israel at the time the
Adjustment for Inflation Law was enacted. Generally, the Adjustment for
Inflation Law was designed to neutralize for Israeli tax purposes the erosion of
capital investments in businesses and to prevent unintended tax benefits
resulting from the deduction of inflationary financing expenses. The Adjustment
for Inflation Law applies a supplementary set of inflationary adjustments to a
normal taxable profit computed according to regular historical cost principles.

The Adjustment for Inflation Law introduced a special tax adjustment for
the preservation of equity based on changes in the Israeli consumer price index,
or CPI, whereby certain corporate assets are classified broadly into fixed
(inflation resistant) assets and non-fixed assets. Where shareholders' equity,
as defined in the Adjustment for Inflation Law exceeds the depreciated cost of
fixed assets, a corporate tax deduction which takes into account the effect of
the applicable annual rate of inflation on such excess is allowed, up to a
ceiling of 70% of taxable income for companies in any single tax year, with the
unused portion permitted to be carried forward on a linked basis with no
ceiling. If the depreciated cost of fixed assets exceeds shareholders' equity,
then such excess multiplied by the applicable annual rate of inflation is added
to taxable income.

In addition, subject to certain limitations depreciation deductions on
fixed assets and losses carried forward are adjusted for inflation based on
changes in the Israeli CPI. The net effect of the Adjustment for Inflation Law
on BackWeb might be that our taxable income, as determined for Israeli corporate
tax purposes, will be different than our U.S. dollar income, as reflected in its
financial statements, due to the difference between the annual changes in the
Israeli CPI and in the NIS exchange rate with respect to the U.S. Dollar,
causing changes in the actual tax rate.

LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

We currently qualify as an "Industrial Company" within the definition of
the Law for the Encouragement of Industry (Taxes), 1969, or the Industry
Encouragement Law. According to the Industry Encouragement Law, an "Industrial
Company" is a company resident in Israel, at least 90% of the income of which in
any tax year determined in Israeli currency exclusive of income from defense
loans, capital gains, interest and dividends, is derived from an "Industrial
Enterprise" owned by it. An "Industrial Enterprise" is defined by
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that law as an enterprise whose major activity in a given tax year is industrial
production activity.

Tax benefits for an Industrial Company include deductions of 12.5% per
annum of the purchase price of a good faith acquisition of a patent or of
know-how, an election under some conditions to file a consolidated tax return
with additional related Israeli Industrial Companies and accelerated
depreciation rates on equipment and buildings.

Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority. We cannot
assure you that we will continue to qualify as an "Industrial Company" or that
the benefits described above will be available in the future.

LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

The Law for the Encouragement of Capital Investments, 1959, as amended, or
the Investment Law, provides that a capital investment in eligible facilities
may, upon application to the Israeli Investment Center, be designated as an
Approved Enterprise. Each certificate of approval for an Approved Enterprise
relates to specific program delineated both by its financial scope, including
its capital sources, and by its physical characteristics, i.e., the equipment to
be purchased and utilized pursuant to the program. The tax benefits derived from
any such certificate of approval relate only to taxable income attributable to
the specific Approved Enterprise.

BackWeb's investment program has been granted the status of an "Approved
Enterprise" under the Investment Law. As of December 31, 1999, the Investment
Program had not been completed.

In the event a company operates under more than one approval, or only part
of its capital investments are approved, or it generates income from sources
other than its Approved Enterprise Program, its effective corporate tax rate is
the result of a weighted combination of the various applicable rates.

According to the provisions of the Investment Law, we chose the
"Alternative Benefits Program" -- waiver of grants in return for tax exemption.
Accordingly, our income from the Approved Enterprise will be tax-exempt for a
period of two years commencing with the year we first earn taxable income, and
subject to corporate tax at the rate of 10% to 25%, for an additional period of
five to eight years depending on the percentage of the foreign investment in
BackWeb.

This period of tax benefits is subject to a limit of 12 years from the
commencement of production, or 14 years from receiving the approval, whichever
is earlier. Under these conditions, the period of benefits for BackWeb's present
plan will terminate by the year 2009.

If dividends are distributed out of such tax-exempt profits, we will be
liable for corporate tax at the rate which would have been applied if we had not
chosen the alternative tax benefits program (currently 25%).

The dividend recipient is taxed at the reduced rate applicable to dividends
from Approved Enterprises (15%). This tax must be withheld by the company at
source regardless of whether the dividend is converted into foreign currency.
See "-- Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders."

The Investment Law also provides that an Approved Enterprise is entitled to
accelerated depreciation on its property and equipment that are included in an
approved investment program.

Incentives received by a company in accordance with the Investment Law
remain subject to final ratification by the Israeli Investment Center, such
ratification being conditional upon fulfillment of all terms of the approved
program. Failure to comply with all such terms may require the return of such
incentives, inclusive of interest and penalties.

We believe that we have operated and will continue to operate in compliance
with all the "Approved Enterprise" conditions and criteria applicable, although
there can be no assurance of this, and that the likelihood is remote that we
will be required to refund tax benefits under the "Approved Enterprise"
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status. We cannot assure you that the tax benefits will continue.

Future applications to the Investment Center will be reviewed separately
with approvals based upon several factors, including the prevailing criteria set
forth in the Investment Law, the specific objectives of the applicant company
and the financial criteria of the applicant company.

CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS

Israeli law generally imposes a capital gains tax on the sale of securities
and any other capital asset. The basic rate applicable to corporations is
currently 36%. The maximum tax rate for individuals is 50%. These rates are
subject to the provisions of any applicable bilateral double taxation treaty,
including the double taxation treaty between the United States and Israel
discussed below.

Under existing regulations any capital gain realized by an individual
shareholder with respect to the ordinary shares acquired on or after the
registration of such shares will be exempt from Israeli Capital Gains Tax if the
ordinary shares are listed on an approved foreign securities market, (including
the Nasdaq in the United States), and provided that (a) BackWeb continues to
qualify as an Industrial Company under Israeli law and (b) the individual does
not hold such shares for business purposes.

We cannot assure you that we will maintain such qualification or our status
as an Industrial Company. If we do not maintain our status as an Industrial
Company, then subject to any applicable tax treaty, the applicable Israeli
capital gains tax rates would be up to 50% for non-resident individuals and for
any pre-initial public offering gains of resident individuals, 35% for
post-initial public offering gains of resident individuals and 36% for resident
and non-resident companies. Individuals who are non-residents of Israel are
subject to income tax on income derived from sources in Israel, or received in
Israel. Such sources of income include passive income such as dividends,
royalties and interests as well as non-passive income from services rendered in
Israel. Upon a distribution of dividends other than bonus shares (stock
dividends), income tax is generally withheld at source at the rate of 25%, with
a rate of 15% for dividends generated by an Approved Enterprise, unless a double
taxation treaty is in effect between Israel and the shareholders country of
residence that provides for a lower tax rate in Israel on dividends.

A tax treaty between the United States and Israel, or the Treaty, effective
since January 1, 1995, provides for a maximum tax of 25% on dividends paid to a
resident of the United States as defined in the Treaty. Dividends distributed by
an Israeli company and derived from the income of an approved enterprise are
subject to a 15% dividend withholding tax. The Treaty further provides that a
12.5% Israeli dividend withholding tax would apply to dividends paid to a United
States corporation owning 10% or more of an Israeli Company's voting stock
during both the preceding year and the current year through the dividend payment
date. The 12.5% rate applies only on dividends from a company that does not have
an "Approved Enterprise" in the applicable period.

Residents of the United States generally will have withholding tax in
Israel deducted at the source. They may be entitled to a credit or deduction for
U.S. federal income tax purposes in the amount of the taxes withheld, subject to
detailed rules contained in the Treaty and in U.S. tax legislation. See "United
States Federal Income Tax Considerations -- Taxation of U.S. Holders." If for
any reason shareholders do not receive the above exemption for a sale of shares
in an Industrial Company, the Treaty provides U.S. resident investors with an
exemption from Israeli capital gains tax, although there may still be U.S.
taxes, upon a disposition of shares in the Company if they held under 10% of the
Company's voting stock through the 12 months before the share disposition. If
Israeli capital gains tax is payable, it may be credited against U.S. tax in
certain circumstances under special provisions in the Treaty. Special tax rules
apply to businesses in Israel, and regular Israeli taxation will apply to
securities dealers in Israel. A non-resident of Israel who has had dividend
income derived or accrued in Israel from which tax was
62
<PAGE> 66

withheld at source is currently exempt from the duty to file an annual Israeli
tax return with respect to such income, provided such income was not derived
from a business carried on in Israel by such non-resident and that such
non-resident does not derive other non-passive income from sources in Israel.
Proposals are being formulated to expand the requirement to file annual Israeli
tax returns.

TAX BENEFITS FOR RESEARCH AND DEVELOPMENT

Israeli tax law allows under certain conditions a tax deduction in the year
incurred for expenditures (including non-depreciable capital expenditures) in
scientific research and development projects, if the expenditures are approved
by the relevant Israeli Government Ministry (determined by the field of
research) and the research and development is for the promotion of the
enterprise. and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year period.
However, according to Israeli Supreme Court decisions, expenditures made out of
the proceeds of government grants are not deductible, i.e., we will be able to
deduct the unfunded portion of the research and development expenditures and not
the gross amount.

63
<PAGE> 67

CONDITIONS IN ISRAEL

BackWeb is incorporated under the laws of the State of Israel, and
substantially all of our research and development and significant executive
facilities are located in Israel. Accordingly, BackWeb is directly affected by
political, economic and military conditions in Israel. Our operations would be
materially adversely affected if major hostilities involving Israel should occur
or if trade between Israel and its present trading partners should be curtailed.

POLITICAL CONDITIONS

Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its neighbors. A state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. In addition, Israel and several
Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. Israel has not entered into any
peace agreement with Syria or Lebanon, and there have been difficulties in the
negotiations with the Palestinians. We cannot be certain as to how the peace
process will develop or what effect it may have upon BackWeb.

Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. BackWeb does not believe that the
boycott has had a material adverse effect on BackWeb, but restrictive laws,
policies or practices directed towards Israel or Israeli businesses may have an
adverse impact on the expansion of BackWeb's business.

Generally, all male adult citizens and permanent residents of Israel under
the age of 51 are obligated to perform up to 39 days, or longer under certain
circumstances, of military reserve duty annually. Additionally, all such
residents are subject to being called to active duty at any time under emergency
circumstances. Currently, some of our senior officers and key employees are
obligated to perform annual reserve duty. While we have operated effectively
under these requirements since we began operations, no assessment can be made as
to the full impact of such requirements on our workforce or business if
conditions should change, and no prediction can be made as to the effect on us
of any expansion or reduction of such obligations.

ECONOMIC CONDITIONS

Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates.

Until May 1998, Israel imposed restrictions on transactions in foreign
currency. These restrictions affected our operations in various ways, and also
affected the right of non-residents of Israel to convert into foreign currency
amounts they received in Israeli currency, such as the proceeds of a judgment
enforced in Israel. Despite these restrictions, foreign investors who purchased
shares with foreign currency were able to repatriate in foreign currency both
dividends, after deduction of withholding tax, and the proceeds from the sale of
the shares. In 1998, the Israeli currency control regulations were liberalized
significantly, as a result of which Israeli residents generally may freely deal
in foreign currency and non-residents of Israel generally may freely purchase
and sell Israeli currency and assets. There are currently no Israeli currency
control restrictions on remittances of dividends on the ordinary shares or the
proceeds from the sale of the shares; however, legislation remains in effect
pursuant to
64
<PAGE> 68

which currency controls can be imposed by administrative action at any time.

TRADE AGREEMENTS

Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either
duty-free or at reduced tariffs.

Israel has entered into preferential trade agreements with the European
Union, the United States and the European Free Trade Association. In recent
years, Israel has established commercial and trade relations with a number of
the other nations, including Russia, China and India, with which Israel had not
previously had such relations.

65
<PAGE> 69

WHERE YOU CAN FIND MORE INFORMATION

BackWeb has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
ordinary shares offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits filed as a part thereof, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to BackWeb and the ordinary shares offered
hereby, reference is made to the registration statement and to the exhibits
filed as a part thereof. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and are qualified in their entirety by reference to each
such contract, agreement or other document which is filed as an exhibit to the
registration statement. The registration statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. In addition, such material will be available for
inspection at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street,
N.W., Washington D.C. 20006. Copies of such material may be obtained by mail
from the Public Reference Branch of the commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.

66
<PAGE> 70

Additionally, we are subject to disclosure requirements under Israeli laws,
as described in "Description of Share Capital -- Access to Information."

LEGAL MATTERS

Certain legal matters in connection with this offering with respect to
United States law will be passed upon for BackWeb by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. The validity of the
ordinary shares offered hereby and certain other legal matters in connection
with this offering with respect to Israeli law will be passed upon for BackWeb
by Naschitz, Brandes & Co., Tel-Aviv, Israel. Naschitz, Brandes & Co. is the
owner of 863,997 ordinary shares.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 1998, and for each of the years in
the three-year period ended December 31, 1999 as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon the
authority of such firm as experts in accounting and auditing.

ISA EXEMPTION

We have received from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in this
exemption should be construed as authenticating the matters contained in this
prospectus or as an approval of their reliability or adequacy or as an
expression of opinion as to the quality of the securities offered in this
prospectus.

67
<PAGE> 71

BACKWEB TECHNOLOGIES LTD.

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Redeemable Convertible Preferred
Stock and Changes in Shareholders' Equity (Net Capital
Deficiency)............................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 72

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
BackWeb Technologies Ltd.

We have audited the accompanying consolidated balance sheets of BackWeb
Technologies Ltd. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity (net capital deficiency), and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BackWeb Technologies Ltd. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Palo Alto, California
January 21, 2000

F-2
<PAGE> 73

BACKWEB TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,449 $ 18,818
Short-term investments.................................... -- 56,789
Trade accounts receivable, net of allowance for doubtful
accounts of $561 and $919 at December 31, 1998 and 1999
respectively............................................ 2,590 6,142
Other current assets...................................... 712 2,344
-------- --------
Total current assets................................ 9,751 84,093
Property and equipment, net................................. 1,030 1,631
Goodwill and other purchased intangibles, net............... 1,824 181
Other assets................................................ 96 144
-------- --------
$ 12,701 $ 86,049
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Line of credit............................................ $ 2,000 $ --
Accounts payable and accrued liabilities.................. 3,357 8,576
Deferred revenue.......................................... 1,666 3,321
Payable to related parties................................ 304 50
Current portion of shareholders' loans.................... 828 823
-------- --------
Total current liabilities........................... 8,155 12,770
Accrued severance pay, net.................................. 93 150
Long-term portion of shareholders' loans.................... 327 --
Long-term debt.............................................. -- --
Commitments and contingencies
Series B, C and D redeemable convertible preferred stock:
nominal value approximately $0.003 per share no shares and
36,039,377 shares authorized at December 31, 1999 and
1998; no shares and 35,158,788 shares outstanding at
December 31, 1999 and 1998................................ 37,304 --
Shareholders' equity (net capital deficiency):
Series A Convertible preferred stock, nominal value $0.003
per share no shares and 25,464,110 shares authorized and
outstanding at December 31, 1999 and 1998............... 495 --
Series E preferred stock, nominal value $0.003 per share
one share authorized and outstanding at December 31,
1999 and 1998........................................... 3,454 3,454
Ordinary shares, nominal value approximately $0.01 per
share 150,067,829 shares authorized; 35,153,402 and
2,518,443 shares outstanding at December 31, 1999 and
1998.................................................... 2,002 124,301
Notes receivable from shareholders........................ -- (3,316)
Deferred stock compensation............................... (1,638) (2,104)
Accumulated other comprehensive loss...................... -- (226)
Accumulated deficit....................................... (37,491) (48,980)
-------- --------
Total shareholders' equity (net capital
deficiency)....................................... (33,178) 73,129
-------- --------
$ 12,701 $ 86,049
======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 74

BACKWEB TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
License................................................... $ 5,311 $ 7,980 $ 18,514
Service................................................... 290 1,557 4,749
-------- -------- --------
Total revenues.................................... 5,601 9,537 23,263
Cost of revenues:
License................................................... 182 266 266
Service................................................... 796 1,353 3,911
-------- -------- --------
Total cost of revenues............................ 978 1,619 4,177
-------- -------- --------
Gross profit................................................ 4,623 7,918 19,086
Operating expenses:
Research and development.................................. 3,955 4,555 5,519
Sales and marketing....................................... 12,224 13,182 18,876
General and administrative................................ 2,981 3,182 4,480
Amortization of goodwill, other intangibles, and deferred
stock compensation..................................... 557 1,824 3,640
-------- -------- --------
Total operating expenses.......................... 19,717 22,743 32,515
-------- -------- --------
Loss from operations........................................ (15,094) (14,825) (13,429)
Other income and expense.................................... 132 218 1,940
-------- -------- --------
Net loss.................................................... $(14,962) $(14,607) $ 11,489
======== ======== ========
Basic and diluted net loss per share........................ $ (6.96) $ (6.07) $ (0.59)
======== ======== ========
Shares used in computing basic and diluted net loss per
share..................................................... 2,151 2,408 19,575
======== ======== ========
Pro forma basic and diluted net loss per share.............. $ (0.69) $ (0.39)
======== ========
Shares used in computing pro forma basic and diluted net
loss per share............................................ 21,208 29,115
======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 75

BACKWEB TECHNOLOGIES LTD.

CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
CHANGES IN SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
---------------------------------------------------
ORDINARY SHARES
---------------------------
NOTES
PREFERRED SHARES ORDINARY SHARES RECEIVABLE DEFERRED
-------------------- --------------------- FROM STOCK
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS COMPENSATION
----------- ------ ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ 25,464,110 $ 495 2,148,573 $ 20 $ -- --
Issuance of one Series E preferred share
representing rights with respect to
1,426,259 ordinary shares, pursuant to
Lanacom, Inc. acquisition............. 1 3,454 -- -- -- --
Issuance of ordinary shares upon
exercise of stock options............. -- -- 15,000 -- -- --
Net loss................................ -- -- -- -- -- --
----------- ------ ---------- -------- ------- -------
Balance at December 31, 1997............ 25,464,111 3,949 2,163,573 20 -- --

<CAPTION>
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
-------------------------------------------

TOTAL
ACCUMULATED SHAREHOLDERS'
OTHER EQUITY (NET
COMPREHENSIVE ACCUMULATED CAPITAL
INCOME (LOSS) DEFICIT DEFICIENCY)
------------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996............ -- (7,922) (7,407)
Issuance of one Series E preferred share
representing rights with respect to
1,426,259 ordinary shares, pursuant to
Lanacom, Inc. acquisition............. -- -- 3,454
Issuance of ordinary shares upon
exercise of stock options............. -- -- --
Net loss................................ -- (14,962) (14,962)
----- -------- --------
Balance at December 31, 1997............ -- (22,884) (18,915)
</TABLE>
<TABLE>
<CAPTION>
Issuance of ordinary shares pursuant to options exercised -- $ -- 320,885 $ 123 $ --
<S> <C> <C> <C> <C> <C>
Issuance of ordinary shares in connection with Series D
redeemable preferred shares to placement agent... -- -- 33,985 -- --
Deferred stock compensation........... -- -- -- 1,859 --
Amortization of deferred stock compensation... -- -- -- -- --
Net loss.............................. -- -- -- -- --
----------- ------ ---------- -------- -------
Balance at December 31, 1998.......... 25,464,111 3,949 2,518,443 2,002 --
Conversion of preferred stock to common stock... (25,464,110) (495) 23,090,238 47,770 --
Issuance of ordinary shares, net of $8,339 issuance
costs............................... -- -- 6,325,000 67,561 --
Issuance of ordinary shares upon exchange of Series E
preferred shares.................... -- -- 1,169,242 -- --
Issuance of ordinary shares pursuant to options and
warrants exercised.................. -- -- 2,050,479 4,192 --
Note receivable from shareholders..... -- -- -- -- (3,538)
Repayment of notes receivable from shareholders... -- -- -- -- 222
Deferred stock compensation........... -- -- -- 2,608 --
Amortization of deferred stock compensation (net)... -- -- -- 168 --
Net loss.............................. -- -- -- -- --
Unrealized loss on investments........ -- -- -- -- --
----------- ------ ---------- -------- -------
Balance at December 31, 1999.......... 1 $3,454 35,153,402 $124,301 $(3,316)
=========== ====== ========== ======== =======

<CAPTION>
Issuance of ordinary shares pursuant to options exercised $ -- $ -- $ -- $ 123
<S> <C> <C> <C> <C>
Issuance of ordinary shares in connection with Series D
redeemable preferred shares to placement agent... -- -- -- --
Deferred stock compensation........... (1,859) -- -- --
Amortization of deferred stock compensation... 221 -- -- 221
Net loss.............................. -- -- (14,607) (14,607)
------- ----- -------- --------
Balance at December 31, 1998.......... (1,638) -- (37,491) (33,178)
Conversion of preferred stock to common stock... -- -- -- 47,275
Issuance of ordinary shares, net of $8,339 issuance
costs............................... -- -- -- 67,561
Issuance of ordinary shares upon exchange of Series E
preferred shares.................... -- -- -- --
Issuance of ordinary shares pursuant to options and
warrants exercised.................. -- -- -- 4,192
Note receivable from shareholders..... -- -- -- (3,538)
Repayment of notes receivable from shareholders... -- -- -- 222
Deferred stock compensation........... (2,608) -- -- --
Amortization of deferred stock compensation (net)... 2,142 -- -- 2,310
Net loss.............................. -- -- (11,489) (11,489)
Unrealized loss on investments........ -- (226) -- (226)
------- ----- -------- --------
Balance at December 31, 1999.......... $(2,104) $(226) $(48,980) $(73,129)
======= ===== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 76

BACKWEB TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $(14,962) $(14,607) $(11,489)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of intangibles, warrant and deferred
stock compensation................................. 617 1,984 4,009
Depreciation.......................................... 300 529 760
Other................................................. (21) (102) --
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable................................ (3,324) 769 (3,552)
Other assets....................................... (126) (174) (1,680)
Payable to related parties......................... 354 (463) (254)
Other liabilities and accrued expenses............. 133 (292) 3,990
Accounts payable................................... 123 (621) (34)
Accrued compensation............................... 357 445 1,263
Deferred revenue................................... 1,036 630 1,655
Severance pay...................................... 35 19 57
-------- -------- --------
Net cash used in operating activities................... (15,478) (11,883) (5,275)
-------- -------- --------
INVESTING ACTIVITIES
Cash received upon acquisition of Lanacom............... 120 -- --
Purchase of other assets................................ (189) (29) --
Purchases of property and equipment..................... (860) (390) (1,361)
Purchases of short-term investments..................... -- -- (64,015)
Maturities of short-term investments.................... -- -- 7,000
-------- -------- --------
Net cash used in investing activities................... (929) (419) (58,376)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from bank line of credit....................... 2,821 2,500 --
Repayment of bank line of credit........................ (1,300) (2,021) (2,000)
Repayment of shareholder loans.......................... -- -- (332)
Proceeds from shareholders' notes receivable............ -- -- 222
Proceeds from issuance of preferred shares, net......... 9,195 11,772 9,915
Proceeds from issuance of ordinary shares, net.......... -- 123 68,215
-------- -------- --------
Net cash provided by financing activities............... 10,716 12,374 76,020
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... (5,691) 72 12,369
Cash and cash equivalents at beginning of the year...... 12,068 6,377 6,449
-------- -------- --------
Cash and cash equivalents at end of the year............ $ 6,377 $ 6,449 $ 18,818
======== ======== ========
NONCASH INVESTING AND FINANCING TRANSACTIONS
Conversion of redeemable preferred stock to common
stock................................................. -- -- $ 47,275
======== ======== ========
Issuance of Series E preferred stock upon acquisition of
Lanacom............................................... $ 3,454 $ -- $ --
======== ======== ========
Supplemental Disclosure
Interest paid during the year........................... $ 25 $ 87 $ 107
======== ======== ========
Issuance of ordinary shares for notes receivables....... $ -- $ -- $ (3,538)
======== ======== ========
</TABLE>

See accompanying notes.
F-6
<PAGE> 77

BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

BackWeb Technologies Ltd. was incorporated under the laws of Israel in
August 1995 and commenced operations in November 1995. BackWeb Technologies Ltd.
and its subsidiaries (collectively, "BackWeb" or the "Company") is a provider of
Internet communication infrastructure and applications software that enables
companies to communicate business-critical, time-sensitive information
throughout their enterprise of customers, partners and employees. BackWeb sells
its products primarily to end users from a variety of industries, including the
telecommunications, financial and the computer industries.

The BackWeb group of companies consist of wholly owned subsidiaries
registered as follows: BackWeb Technologies, Inc., a U.S. corporation; BackWeb
Canada, Inc., a Canadian corporation; BackWeb Technologies B.V., a Netherlands
corporation; BackWeb Technologies U.K. Ltd, a United Kingdom corporation;
BackWeb Technologies GMBH, a German corporation; BackWeb Technologies S.A.R.L.,
a French corporation, BackWeb Technologies A.B., a Swedish corporation and
BackWeb K.K. Ltd, a Japanese corporation.

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. Inter-company
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

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

REVENUE RECOGNITION

License revenues are comprised of perpetual or multi-year license fees,
which are primarily derived from contracts with corporate customers and
resellers, and royalty fees earned upon the shipment of products which
incorporate the Company's software. License revenue is recognized when a license
agreement has been executed or a definitive purchase order has been received,
the product has been delivered to end customers, no significant BackWeb
obligations with regard to implementation remain, the fee is fixed and
determinable, and collectibility is probable. For electronic delivery, the
software is considered delivered when BackWeb has provided the customer with the
access codes (the "key") that allow for immediate possession of the software. If
the fee due from the customer is not fixed and determinable, revenue is
recognized as payments become due from the customer. If collectibility is not
considered probable, revenue is recognized when the fee is collected. Revenue on
arrangements with customers who are not the ultimate users (primarily resellers)
is not recognized until the product is delivered to the end user. Royalty
revenues are recognized when reported to the Company after shipment of the
related products.

Service revenues are comprised of revenue from support arrangements,
consulting fees and training. BackWeb's policy is to recognize license revenue
when these services are not essential to the functionality of the product. To
date, these services have not been essential to the functionality of the
product. Support arrangements provide technical support and the right to
unspecified upgrades on an if-and-when-available basis. Revenue from support
arrangements is deferred and recognized on a straight-line basis as service
revenue over the life of the related

F-7
<PAGE> 78
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
service agreement, typically one year. Consulting and training revenue is
deferred and recognized when provided to the customer. Customer advances and
billed amounts due from customers in excess of revenue recognized are recorded
as deferred revenue. In instances where software license agreements include a
combination of consulting services, training and support, these separate
elements are unbundled from the arrangement based on the element's relative fair
value.

BackWeb adopted Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), and Statement of Position 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"), as of
January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue
on software transactions and supersede Statement of Position 91-1. The adoption
of SOP 97-2 and SOP 98-4 did not have a material impact on BackWeb's financial
results and operations.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. The Company believes that
the adoption of SOP 98-9 will not have a material effect on the Company's
financial results.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as
incurred. Statement of Financial Accounting Standard ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on BackWeb's
product development process, technological feasibility is established upon the
completion of a working model. BackWeb generally does not incur any significant
costs between the completion of the working model and the point at which the
product is ready for general release. Through December 31, 1999 BackWeb has
recognized all software development costs to research and development expense in
the period incurred.

FOREIGN CURRENCY TRANSACTIONS

BackWeb has elected to prepare its financial statements in U.S. dollars,
which is also BackWeb's functional currency. Most of the revenue generated is in
U.S. dollars. A significant portion of the company's research and development
expenses is generated in New Israel Shekels ("NIS"). Since the U.S. dollar is
the primary currency in the economic environment in which BackWeb conducts its
operations, the U.S. dollar is the functional currency of BackWeb Technologies
Ltd. and each of its subsidiaries.

Monetary accounts maintained in currencies other than the U.S. dollar
(principally cash and liabilities) are re-measured using the foreign exchange
rate at the balance sheet date in accordance with SFAS No. 52, "Foreign Currency
Translations". Operational accounts and non-monetary balance sheet accounts are
measured and recorded in current operations at the rate in effect at the date of
the transaction. The foreign currency re-measurement effect for 1999 and 1998
was a loss of $117,000 and gain of $163,000 respectively. The foreign currency
re-measurement effects were immaterial in 1997.

F-8
<PAGE> 79
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS

BackWeb accounts for advertising costs as expense in the period in which
the costs are incurred. Advertising expense for the years ended December 31,
1999, 1998 and 1997 were $528,000, $42,000 and $756,000 respectively.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of money market instruments, bank time deposits
and debt-securities with original maturities of 90 days or less. Short-term
investments consist of debt securities with original maturities between three
months and two years.

Management determines the appropriate classification of debt and equity
securities at the time of purchase and evaluates such designation as of each
balance sheet date. To date, all debt securities have been classified as
"available-for-sale" and are carried at fair market value, based on quoted
market prices with material unrealized gains and losses, if any, included as a
separate component of shareholders' equity. Realized gains and losses and
declines in value of securities judged to be other than temporary are included
in interest income and have not been material to date. The cost of securities
sold is based on the specific identification method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets, generally two to three years.

GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

BackWeb has recorded goodwill representing the excess of the aggregate
purchase price over the fair market value of the tangible and intangible assets
acquired in connection with the acquisition of Lanacom, Inc., ("Lanacom").
Goodwill, developed technology and other identified intangibles are amortized on
a straight-line basis over the estimated useful life. Intangible assets, consist
of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL ----------------
LIFE 1999 1998
---------- ------ ------
(IN YEARS)
<S> <C> <C> <C>
Goodwill................................................... 2.5 $3,224 $3,224
Developed technology....................................... 2.5 400 400
Other intangibles.......................................... 2 580 580
--- ------ ------
4,204 4,204
Less: Accumulated amortization............................. 4,023 2,380
--- ------ ------
Goodwill and other intangibles, net........................ $ 181 $1,824
=== ====== ======
</TABLE>

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject BackWeb to concentrations
of credit risk, consist of cash equivalents, short-term investments and trade
receivables. BackWeb's cash equivalents and short-term investments generally
consist of money market funds with high credit

F-9
<PAGE> 80
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
quality financial institutions and corporate debt securities. The Company has
established guidelines relative to credit ratings, diversification and maturity
that seek to maintain safety and liquidity.

BackWeb sells its products to customers primarily in the United States.
BackWeb performs ongoing credit reviews of its customers' financial condition
and generally does not require collateral. BackWeb maintains reserves to provide
for estimated credit losses. Provision for bad and doubtful debts in the years
ended December 31, 1999, 1998 and 1997 were $533,000, $677,000 and $485,000
respectively. Bad debt write-off's of accounts in the years ended December 31,
1999, 1998 and 1997 totaled $175,000, $591,000 and $10,000, respectively.

In 1999 revenue from one customer which was $3.1 million represented 13% of
total revenue for that year. No customer represented more than 10% of total
revenues in 1998. In 1997, revenues from two customers represented 19% and 11%
of total revenues respectively.

NET LOSS PER SHARE

The basic and diluted net loss per share has been computed using the
weighted-average number of ordinary shares outstanding during the period.

The basic and diluted "pro forma" net loss per share, as presented in the
statements of operations, has been computed using the weighted-average number of
ordinary shares outstanding during the period and also takes effect of the
conversion of all preferred shares that converted automatically upon completion
of the Company's initial public offering (using the "as-if" converted method)
from original date of issuance.

The following table presents the calculation of the basic, diluted, pro
forma basic and diluted net loss per ordinary share (in thousands, except per
share data):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Net loss.................................................... $(11,489) $(14,607)
======== ========
Basic and diluted:
Weighted-average shares................................... 20,421 2,408
Less weighted-average shares subject to repurchase........ (846) --
-------- --------
Shares used in computing basic and diluted net loss per
share..................................................... 19,575 2,408
======== ========
Basic and diluted net loss per share........................ $ (0.59) $ (6.07)
======== ========
Pro forma:
Shares used above......................................... 19,575 2,408
Pro forma adjustment to reflect weighted effect of assumed
conversion of redeemable convertible and convertible
preferred stock........................................ 9,540 18,800
-------- --------
Shares used in computing pro forma basic and diluted net
loss per share......................................... 29,115 21,208
======== ========
Pro forma basic and diluted net loss per share............ $ (0.39) $ (0.69)
======== ========
</TABLE>

F-10
<PAGE> 81
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All preferred stock, outstanding stock options, and warrants have been
excluded from the calculation of the diluted loss per ordinary share because all
such securities are considered to be anti-dilutive for all periods presented in
the statement of operations. The total number of ordinary shares related to
preferred stock, outstanding options and warrants excluded from the calculations
of diluted net loss per share were: 7,672,723 for the year ended December 31,
1999, 25,657,825 for the year ended December 31, 1998 and 20,796,354, for the
year ended December 31, 1997.

Such securities as noted in the preceding paragraph would have been
included in the computation of the diluted net income per share using the
treasury stock method.

STOCK-BASED COMPENSATION

BackWeb has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. The alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of BackWeb's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. See the pro forma disclosures of the application of SFAS 123 in Note
8.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The accumulated and other comprehensive loss consists entirely of
unrealized losses on short-term investments. As at December 31, 1999 the amount
was $226,000. There was no amount for 1998.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
BackWeb is required to adopt SFAS 133 for the year ending December 31, 2000.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities. Because BackWeb currently holds no derivative financial
instruments as defined by SFAS 133 and does not currently engage in hedging
activities, adoption of SFAS 133 is not expected to have a material effect on
BackWeb's financial condition or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is currently evaluating the impact of SAB 101. Should the Company
determine that a change in its accounting policy is necessary, such a change
will be made effective January 1, 2000 and would result in a charge to results
of operations for the cumulative effect of the change. This amount, if
recognized, would be recorded as deferred revenue and recognized as revenue in
future periods. Prior financial statements would not be restated.

F-11
<PAGE> 82
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SHORT-TERM INVESTMENTS

The following is a summary of the company's investment portfolio as of
December 31, 1999 (in $ thousands):

<TABLE>
<CAPTION>
UNREALIZED ESTIMATED
COST LOSSES FAIR VALUE
------- ---------- ----------
<S> <C> <C> <C>
Money market funds..................................... $30,000 $ -- $30,000
Corporate debt securities.............................. 27,015 (226) 26,789
------- ----- -------
Totals............................................ $57,015 $ 226 $56,789
======= ===== =======
</TABLE>

All investments mature within two years. At December 31, 1999 the total
amounts of investments due within one year and due after one year through two
years are $43.3 million and $13.5 million respectively.

3. PROPERTY AND EQUIPMENT

Property and equipment at cost, consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Computer equipment.......................................... $ 2,145 $1,493
Office equipment, furniture, fixtures, and other............ 1,117 408
------- ------
3,262 1,901
Less accumulated depreciation............................... (1,631) (871)
------- ------
Property and equipment, net................................. $ 1,631 $1,030
======= ======
</TABLE>

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in $
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Accounts payable............................................ $ 807 $ 841
Accrued compensation and related expense.................... 2,519 1,256
Sales events................................................ 950 --
Other....................................................... 4,300 1,260
------ ------
$8,576 $3,357
====== ======
</TABLE>

5. RELATED PARTIES

SHAREHOLDERS' LOANS

In 1995, BackWeb signed an agreement with its early investors (the "Early
Investors"), according to which the Early Investors provided BackWeb with loan
financing in the amount of $500,000. The loan is denominated in NIS and linked
to the Israel consumer price index. The loan is payable at a rate of 2.5% of
cumulative consolidated revenues in excess of $5,000,000. In addition, effective
September 30, 1996, $748,000 of accounts payable to the Early Investors were
converted into a shareholders' loan on the same terms as the $500,000 loan. As
of December 31,

F-12
<PAGE> 83
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. RELATED PARTIES (CONTINUED)
1999, the loan balance was $823,000, re-stated for the Israeli consumer price
index and reflecting currency conversion adjustment and repayments.

SERVICES FROM AFFILIATES

The Early Investors provided BackWeb with professional services relating
primarily to management and administrative services in return for reimbursement
of specifically identified expenses and salaries. Amounts incurred for these
services were approximately $7,000, $220,000 and $516,000, during the years
ended December 31, 1999, 1998 and 1997 respectively. BackWeb reimbursed BRM
Technologies Ltd. ("BRM"), a related party, for technology and administrative
services on the basis of specific cost plus markup and specifically identified
expenses at cost. Amounts incurred for these services were approximately
$235,000, $873,000 and $1.2 million during the years ended December 31, 1999,
1998 and 1997 respectively.

BackWeb believes that the amounts charged in connection with the services
from founders approximate the cost that would have been incurred if BackWeb
would have incurred these costs internally.

STOCK OPTIONS

Pursuant to the Founding Agreement, BackWeb granted to its Early Investors
the right to have grant of stock options for up to 792,167 ordinary shares of
common stock for any person or entity. Through December 31, 1999, options for
779,107 ordinary shares have been granted and 13,060 shares remain available.
This pool of options has been used by the Early Investors in granting options to
employees and consultants of BRM and other related companies.

Some shareholders and officers of BackWeb have a controlling interest in
another company deemed to be a related party.

REVENUE FROM AFFILIATES

During 1999, the company recorded revenues of $1,132,500 related to
products licensed to a related party. As of December 31, 1999 $632,500 is
included in account receivable.

6. COMMITMENTS AND CONTINGENCIES

LEASES

BackWeb leases its office facilities under cancelable and non-cancelable
operating leases. Future rental payments on a fiscal year basis under
non-cancelable operating leases with initial terms in excess of one year are as
follows (in thousands):

Rent expense approximated $918,000, $695,000 and $458,000 for the years
ended December 31, 1999, 1998 and 1997 respectively.

F-13
<PAGE> 84
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
BANK LINE OF CREDIT

In December 1998, BackWeb entered into a line of credit agreement with
TransAmerica Business Credit Corporation, which provides for formula and
nonformula revolving credit loans aggregating up to $6,500,000. The line of
credit is secured by substantially all of BackWeb's assets. Borrowings under the
line of credit bear interest at the bank's prime rate plus 2%-4%. The borrowing
under the line of credit at December 31, 1998 was $2,000,000, with interest at
prime plus 4%. No amounts were outstanding at December 31, 1999.

The amount available under the formula loans is limited to the lower of
$3,000,000 or an amount equal to 85% of eligible accounts receivable. The amount
available under the nonformula loans and term loans are $2,000,000 and
$1,500,000, respectively. As of December 31, 1999, BackWeb had $5,000,000 in
unused availability under the formula and nonformula line of credit.

CONTINGENCIES

From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accounts
for contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or the results of
operations or cash flows of the Company.

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

ORDINARY SHARES

In June 1999, the company completed an initial public offering of 6,325,000
ordinary shares at $12 per share, resulting in net proceeds of approximately
$67.9 million.

The Company's Articles of Association, as amended, authorizes the Company
to issue 150,067,829 Ordinary Shares of common stock at a nominal value of NIS
0.03 per share.

Ordinary shares subject to future issuance are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Exchange of BWC shares (represented by Series E preferred
stock) into ordinary shares............................... 1,426,259
Exercise of outstanding options............................. 5,271,131
Ordinary shares available for grant under stock option
plans..................................................... 2,624,642
Exercise of preferred stock warrants outstanding and
conversion to ordinary shares............................. 128,333
</TABLE>

STOCK SPLIT

In April 1999, the shareholders approved a one-for-three reverse ordinary
stock split. All ordinary share numbers and preferred stock conversion ratios
have been retroactively adjusted to reflect the reverse stock split.

F-14
<PAGE> 85
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
PREFERRED STOCK

The Company is authorized to provide for the issuance of up to 50,000,000
shares of undesignated preferred stock, none of which has been issued at
December 31,1999.

Immediately prior to the completion of the Company's initial public
offering all outstanding shares of Series A, B, C and D preferred stock
converted into an aggregate of 23,090,238 ordinary shares. At December 31, 1999,
one share of Series E preferred stock was outstanding (representing voting
rights with respect to 1,426,259 ordinary shares).

Preferred stock prior to the initial public offering was composed of the
following (in thousands):

<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
AUTHORIZED AND OUTSTANDING PREFERENCE
---------- --------------- -----------
<S> <C> <C> <C>
Redeemable convertible preferred stock:
Series B................................... 4,237,640 4,237,640 3,207,893
Series C-1................................. 10,482,608 10,482,608 12,054,999
Series C-2................................. 3,919,129 3,047,232 3,504,317
Series D................................... 17,400,000 17,391,308 20,000,004
Series D-1................................. 8,647,815 8,647,815 9,944,987
---------- ---------- ----------
44,687,192 43,806,603 8,712,200
========== ========== ==========
Series A convertible preferred stock....... 25,464,110 25,464,110 2,024,397
========== ========== ==========
Series E preferred stock................... 1 1 --
========== ========== ==========
</TABLE>

The following summarizes the redeemable convertible preferred stock
activity (in thousands):

<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D
---------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 4,237 $3,090 11,722 $13,247 -- $ --
Issuance of Series C................ -- -- 870 972 -- --
Issuance of Series D................ -- -- -- -- 8,078 8,223
------ ------- ------- ------- ------- --------
Balance at December 31, 1997........ 4,237 3,090 12,592 14,219 8,078 8,223
Issuance of Series D................ -- -- -- -- 9,313 10,699
Issuance of Series C................ -- -- 939 1,073 -- --
------ ------- ------- ------- ------- --------
Balance at December 31, 1998........ 4,237 3,090 13,531 15,292 17,391 18,922
Issuance of Series D................ -- -- -- -- 8,648 9,915
Conversion to ordinary shares....... (4,237) (3,090) (13,531) (15,292) (26,039) (28,837)
------ ------- ------- ------- ------- --------
Balance at December 31, 1999........ -- $ -- -- $ -- -- $ --
====== ======= ======= ======= ======= ========
</TABLE>

Series E preferred stock was issued to a trustee in connection with the
Lanacom acquisition and represents the voting and exchange rights of the BackWeb
Canada Inc., (BWC) exchangeable common shares. The registered holder of the
Series E preferred stock is entitled to have a number of votes equal to the
number of outstanding exchangeable shares of BWC. The holder of the Series E
preferred stock shall not be entitled to receive any dividend declared and paid
by BackWeb Ltd. However, if such a dividend is declared by BackWeb Ltd, an

F-15
<PAGE> 86
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
equivalent dividend will be declared simultaneously by BWC on the exchangeable
shares. Series E preferred stock shall be canceled when there will be no
outstanding exchangeable shares of BWC.

In March 1999, BackWeb issued 8,647,815 shares of Series D-1 redeemable
convertible preferred stock to investors at $1.15 per share, resulting in net
cash proceeds of approximately $9.9 million.

STOCK WARRANT

In December 1996 and March 1997, in connection with the Series C financing,
BackWeb issued warrants to purchase 1,810,432 Series C-2 redeemable convertible
preferred shares at an exercise price of $1.15 per share. In December 1998,
warrants to purchase 938,536 shares were exercised while the remainder of
871,896 expired.

In December 1998, in connection with a bank loan, BackWeb issued a warrant
for the purchase of 385,000 shares of Series C-2 redeemable convertible
preferred shares at $1.15 per share. The warrant is exercisable through the
earlier of a merger or consolidation of BackWeb, or December 2003. The warrant
fair value of $224,000 was amortized over the term of the bank line of credit in
1999.

STOCK OPTION PLANS

Under the 1996 Israel Stock Option Plan (the "1996 Israel Plan"), BackWeb
is authorized to grant options to purchase ordinary shares to its Israeli
employees and other eligible participants. Options granted under the 1996 Israel
Plan expire seven years from the date of grant and terminate upon the
termination of the option holders employment or other relationship with BackWeb.
The options vest ratably over a four-year period.

Under the 1996 U.S. Stock Option Plan (the "1996 U.S. Plan"), BackWeb is
authorized to grant incentive stock options to employees and non-statutory stock
options to employees, officers, directors and consultants at BackWeb or any
other member of the BRM group. Options granted under the 1996 U.S. Plan expire
no later than seven years from the date of grant and generally vest over a four
year period. BackWeb is no longer granting options under the 1996 U.S. Plan. In
the event of merger, sale or dissolution of the Company, all options will
terminate immediately, except to the extent the options are assumed by the
Successor Corporation.

Under the 1998 U.S. Option Plan (the "1998 U.S. Plan"), BackWeb is
authorized to grant incentive stock options to employees and non-statutory stock
options and share purchase rights to employees, directors and consultants. The
number of shares authorized and reserved under the plan will be subject to an
annual increase on each anniversary beginning July 1, 2000 equal to the lesser
of 1,400,000 shares, 3% of the outstanding shares on such date or an amount
determined by the Board of Directors. The exercise price of incentive stock
options must not be less than the fair market value of its ordinary share at the
date of the grant. Options granted under the 1998 U.S. Option Plan generally
vest over four years. In the event of an acquisition of BackWeb, the options
will accelerate and become fully vested, except to the extent the options are
not assumed by the Successor Corporation.

BackWeb introduced in 1999 an Employee Stock Purchase Plan, which was
adopted by the Board of Directors in March 1999. BackWeb has reserved a total of
600,000 shares for issuance

F-16
<PAGE> 87
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
under the plan. The number of shares reserved under the plan is subject to an
annual increase on each anniversary beginning July 1, 2000 equal to the lesser
of 833,333 shares, 2% of the then outstanding shares or an amount determined by
the Board of Directors. Eligible employees may purchase ordinary shares at 85%
of the lesser of the fair market value of BackWeb's ordinary shares on the first
day of the applicable offering period or the last day of the applicable purchase
period.

A summary of activity under the stock option plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
SHARES AVERAGE FAIR VALUE
AVAILABLE OPTIONS PRICE PER EXERCISE OF OPTION
FOR GRANT OUTSTANDING SHARE PRICE GRANTED
---------- ----------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996............. 3,298,500 1,701,500 $0.03 - $ 0.36 $ 0.09 $ 0.03
Options granted........................ (1,890,367) 1,890,367 $1.05 - $ 1.20 $ 1.17
Options exercised...................... -- (15,000) $0.03 - $ 0.24 $ 0.18
Options canceled....................... 191,667 (191,667) $0.03 - $ 1.20 $ 0.90
---------- ----------
Balance at December 31, 1997............. 1,599,800 3,385,200 $0.03 - $ 1.20 $ 0.66 $ 0.21
Options authorized..................... 1,666,667 -- -- --
Options granted........................ (3,236,500) 3,236,847 $1.20 - $ 2.10 $ 1.83
Options exercised...................... -- (320,885) $0.03 - $ 1.20 $ 0.39
Options canceled....................... 997,253 (996,349) $0.12 - $ 1.50 $ 1.05
---------- ----------
Balance at December 31, 1998............. 1,027,220 5,304,813 $0.03 - $ 2.10 $ 1.32 $ 0.33
---------- ----------
Options authorized..................... 3,600,000 -- -- --
Options granted........................ (2,688,886) 2,688,886 $1.50 - $38.38 $10.66
Options exercised...................... -- (2,036,260) $0.03 - $ 5.79 $ 2.07
Options canceled....................... 686,308 (686,308) $0.12 - $27.19 $ 4.22
---------- ----------
Balance at December 31, 1999............. 2,624,642 5,271,131 $0.03 - $38.38 $ 5.41 $10.85
---------- ----------
</TABLE>

Exercise prices for options outstanding as of December 31, 1999 and the
weighted-average remaining contractual life are as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- --------------------------
NUMBER AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1999 LIFE PRICE 1999 PRICE
-------- -------------- ----------- --------- -------------- ---------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$0.03 571,319 2.99 $ 0.03 571,319 $ 0.03
$ 0.12 - $ 1.05 220,551 4.24 0.47 100,467 0.47
$1.20 423,988 5.47 1.20 235,726 1.20
$1.50 641,688 8.60 1.50 79,959 1.50
$2.10 1,528,697 7.85 2.10 327,464 2.10
$ 2.70 - $ 8.10 1,198,888 9.22 5.15 15,556 5.15
$16.75 - $38.38 686,000 8.80 25.53 -- 25.53
--------- ---------
$0.03 - $38.38 5,271,131 7.57 $ 5.41 1,330,491 $ 0.88
========= =========
</TABLE>

F-17
<PAGE> 88
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
During the year ended December 31, 1999 and 1998, in connection with the
grant of certain share options, BackWeb recorded as deferred stock compensation
of $2,608,000 and $1,859,000 respectively. Such amounts represented the
difference between the exercise price and the deemed fair market value of
BackWeb's ordinary share on the date such stock options were granted. Such
amount is being amortized based on an accelerated method over the vesting period
of the options, generally four years. In 1999 and 1998, BackWeb recorded
amortization of deferred stock compensation expense of approximately $2,142,000
and $221,000 respectively. At December 31, 1999, BackWeb had a total of
$2,104,000 remaining to be amortized.

RESTRICTED SHARES ISSUED FOR PROMISSORY NOTES

On March 25, 1999, several key employees and one director exercised options
for 1,141,333 ordinary shares for promissory notes in the aggregate amount of
$3,538,000. The notes are full recourse and are secured by the shares, bear
interest at a rate in the range of 5.25% to 6% per annum and are payable over
the remaining options vesting period. The shares are restricted and are subject
to a right of repurchase in favor of BackWeb in accordance with the original
options' vesting schedule, which is generally four years.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. If the compensation expense for options granted for
the years ended December 31, 1999, 1998 and 1997 respectively, had been
determined based on the fair market value at the grant dates as prescribed by
SFAS 123, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported........................................... $(11,489) $(14,607) $(14,962)
Pro forma............................................. $(15,365) $(14,731) $(15,055)
Basic and diluted loss per share:
As reported........................................... $ (0.59) $ (6.07) $ (6.96)
Pro forma............................................. $ (0.78) $ (6.12) $ (7.00)
</TABLE>

Because the determination of fair market value of all options granted after
the time the Company became a public entity include volatility factors, the
above results may not be representative of future periods.

F-18
<PAGE> 89
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
The Company calculated the fair market value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 and the following assumptions:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates.................................... 6% 6% 6%
Expected lives (in years)................................... 5 5 5
Dividend yield.............................................. 0% 0% 0%
Expected volatility......................................... 100% 0% 0%
</TABLE>

8. INCOME TAXES

Pretax loss from foreign operations (non-Israel) was approximately
$6,487,000 in 1999, $3,621,000 in 1998 and $2,648,000 in 1997.

ISRAELI INCOME TAXES

BackWeb's investment program has been granted the status of "Approved
Enterprise" by the Israel government under the law for the Encouragement of
Capital Investments Act, 1959 (the "Law"). Income derived in Israel from the
"Approved Enterprise" entitles BackWeb to tax exemption for a period of two
years commencing in the first year that it will earn taxable income. After this
BackWeb is entitled to a reduced tax rate of 10% -- 25% for an additional 5 to 8
year period (depending on the rate of foreign investment in BackWeb). The tax
benefit period is limited to the earliest of 12 years from completion of the
investment under the plan or December 31, 2009. Thereafter, BackWeb will be
subject to the regular corporate tax rate of 36% on its Israel income. Income
from sources other than the "Approved Enterprise" will be subject to tax at the
regular rate of 36%.

BackWeb currently has no plans to distribute such tax-exempt income as
dividend and intends to retain future earnings to finance the development of the
business. If the retained tax-exempt income was distributed in a manner other
than in the complete liquidation of BackWeb, it would be taxed at the corporate
tax rate applicable to such profits (currently 25%). As of December 31, 1999,
BackWeb is in the process of completing the investments required under the
program. If BackWeb fails to meet certain conditions as stipulated by law and
the Approval Certification, it could be subject to corporate tax in Israel at
the corporate rate of 36% and could be required to refund tax benefits already
received at that time (inclusive of interest and penalties). The conditions that
are specified include inter alia making specified investments in fixed assets,
maintaining the development and production nature of its facilities, and
financing of at least 30% of the investment program through equity.

As of December 31, 1999, BackWeb had approximately $32,300,000 of Israeli
net operating loss carry-forwards. The Israeli loss carry-forwards have no
expiration date. The Company expects that during the period these losses are
utilized, its income would be substantially tax exempt. Accordingly, there will
be no tax benefit available from such losses and no deferred income taxes have
been included in these financial statements.

F-19
<PAGE> 90
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)
U.S. INCOME TAXES

At December 31, 1999, the Company has U.S. Federal net operating loss
carry-forwards for income tax purposes of approximately $1,500,000. The net
operating loss expires in various amounts between the years 2011 and 2019.

Utilization of the U.S. net operating losses may be subject to substantial
annual limitation due to the "change in ownership" provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses before utilization.

DEFERRED INCOME TAXES

Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carry-forwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the BackWeb's
deferred tax assets and liabilities for federal and state income taxes are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
U.S. Net operating loss carryforwards....................... $ 600 $ 400
Other foreign net operating loss carryforwards.............. 4,300 2,300
Reserves not currently deductible........................... 300 200
Other, net.................................................. 400 200
------- -------
Total deferred tax assets................................... 5,600 3,100
Valuation allowance for deferred tax assets................. (5,600) (3,100)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>

For the years ended December 31, 1998 and 1997 the valuation allowance
increased by $2,100,000 and $700,000, respectively.

Approximately $500,000 of the deferred tax asset for U.S. net operating
losses relate to stock option deductions the benefit of which will be credited
to equity upon realization.

At December 31, 1999, BackWeb had other foreign net operating loss
carry-forwards of approximately $14.2 million. The net operating losses expire
in various amounts between 2002 and 2005.

9. SEGMENTS AND GEOGRAPHIC INFORMATION

BackWeb operates in one industry segment, the development and marketing of
network application software. Operations in Israel and Canada include research
and development and local sales. Operations in the U.S. include marketing and
sales. The following is a summary of

F-20
<PAGE> 91
BACKWEB TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
operations within geographic areas based on the location of the entity making
that sale (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Revenues from sales to unaffiliated customers:
Israel.................................................... $ 6,401 $1,623 $ 593
United States............................................. 16,506 7,574 4,979
Canada.................................................... 356 340 29
------- ------ ------
$23,263 $9,537 $5,601
======= ====== ======
Long-lived assets:
Israel.................................................... $ 517 $ 257 $ 257
United States............................................. 1,013 650 972
Canada.................................................... 264 1,849 3,527
Other..................................................... 18 98 --
------- ------ ------
$ 1,812 $2,854 $4,756
======= ====== ======
</TABLE>

Revenues generated in the U.S. and Canada (collectively, North America) are
all to customers located in those geographic regions. Revenues generated in
Israel consist of export sales to customers located in Europe and the Far East.

10. SUBSEQUENT EVENT

On January 17, 2000, RealNetworks Inc. and BackWeb entered into a
Securities Purchase Agreement under which RealNetworks Inc. acquired 458,000
Ordinary Shares in exchange for payment of $14,999,500. Further, RealNetworks
acquired a warrant to purchase up to 114,500 Ordinary Shares at an exercise
price of $32.75 per share.

F-21
<PAGE> 92

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.

[BACKWEB LOGO]

Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 93

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASDAQ National Market Fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,045
Printing and engraving expenses............................. 150,000
Accountant's fees and expenses.............................. 150,000
Legal fees and expenses..................................... 150,000
Miscellaneous............................................... 34,955
--------
Total............................................. $500,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Israeli law permits a company to insure an office holder in respect of
liabilities incurred by him as a result of the breach of his duty of care to the
company or to another person, or as a result of the breach of his fiduciary duty
to the company, to the extent that he acted in good faith and had reasonable
cause to believe that the act would not prejudice the company. A company can
also insure an office holder for monetary liabilities as a result of an act or
omission that he committed in connection with his serving as an office holder.
Furthermore, a company can indemnify an office holder for monetary liability in
connection with his activities as an office holder.

The Articles of Association of BackWeb allow BackWeb to insure and
indemnify office holders to the fullest extent permitted by law. BackWeb has
acquired directors' and officers' liability insurance covering the officers and
directors of BackWeb and its subsidiaries for certain claims.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

(a) Since January 1, 1996, the Registrant has issued and sold (without
payment of any selling commission to any person) the following
unregistered securities:

(1) In June 1999, in connection with its initial public offering, the
Registrant effected a three-for-one reverse stock split of its
outstanding ordinary shares in which every outstanding ordinary share
was split into three ordinary shares.

(2) In July 1996, the Registrant issued and sold its Series B Preferred
Shares convertible into an aggregate of 1,412,547 ordinary shares to a
total of two investors for an aggregate purchase price of
$3,207,893.40.

(3) From December 1996 to March 1997, the Registrant issued and sold its
Series C Preferred Shares convertible into an aggregate of 4,197,101
ordinary shares to a total of ten investors for an aggregate purchase
price of $14,479,998.

(4) In December 1996 and March 1997, the Registrant issued Series C-2
warrants convertible into 603,477 ordinary shares to a total of seven
investors. In December 1998, two investors exercised those warrants
convertible into 312,845 ordinary shares for an aggregate purchase
price of $1,079,316.

II-1
<PAGE> 94

(5) In August 1997, in connection with the Registrant's acquisition of
Lanacom Inc., a Canadian company, the Registrant issued its
exchangeable shares convertible into an aggregate of 2,844,303 ordinary
shares to the former shareholders of Lanacom, Inc.

(6) From December 1997 to March 1999, the Registrant issued and sold its
Series D Preferred Shares convertible into an aggregate of 8,679,707
ordinary shares to a total of twenty-one investors for an aggregate
purchase price of $29,944,990.

(7) In August 1997, the Registrant issued a warrant for its Series D
Preferred Shares convertible into an aggregate of 17,393 ordinary
shares to one investor at an exercise price of $3.45 per share.

(8) In December 1998, the Registrant issued a warrant for its Series C
Preferred Shares convertible into an aggregate of 128,333 ordinary
shares to one investor at an exercise price of $3.45 per share.

(9) In January 2000, the Registrant issued and sold an aggregate of 458,000
ordinary shares to one investor for an aggregate purchase price of
$14,999,500. Also, the Registrant issued a warrant for an aggregate of
114,500 ordinary shares at an exercise price of $32.75 per share.

(10) From October 1996 to December 31, 1999 the Registrant granted options
to purchase 5,271,131 ordinary shares under its 1996 U.S. Share Option
Plan, 1998 U.S. Share Option Plan and 1996 Israeli Share Option Plan.

(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities. The issuances described in
Items 15(a)(2), 15(a)(3), 15(a)(4), 15(a)(5), 15(a)(6), 15(a)(7), 15(a)(8) and
15(a)(9) were deemed exempt from registration under the Securities Act in
reliance upon Section 4(2) thereof as transactions by an issuer not involving
any public offering. The issuances described in Item 15(a)(10) were deemed
exempt from registration under the Securities Act in reliance upon Rule 701
promulgated thereunder in that they were offered or sold either pursuant to a
written contract relating to compensation, as provided by Rule 701. In addition,
such issuances were deemed to be exempt from registration under Section 4(2) of
the Securities Act as transactions by an issuer not involving any public
offering. The recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends where affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.

II-2
<PAGE> 95

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<S> <C> <C>
3.1 Articles of Association of Registrant.......................
3.2 Memorandum of Association of Registrant (English
translation)................................................
4.1 Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Rights Agreement................
4.3 Form of Liquidity Proposal between BackWeb Technologies,
Ltd. and the Exchangeable shareholders......................
5.1* Opinion of Naschitz, Brandes & Co. as to the validity of the
shares......................................................
10.1 1996 Israeli Share Option Plan (English translation)........
10.2 1996 U.S. Share Option Plan.................................
10.3 1998 U.S. Share Option Plan.................................
10.4 1999 Employee Stock Purchase Plan...........................
10.5 Lease Agreement for 3 Abba Hillel Street, Ramat Gan, Israel
(English translation).......................................
10.6 Lease Agreement for 34 Tuval Street, Ramat Gan, Israel
(English translation).......................................
10.7 Lease Agreement for 2077 Gateway Place, Suite 500, San Jose,
California..................................................
10.8 Form of Agreement by and among Interad (1995) Ltd. and Nir
Barkat Holdings Ltd., Eli Barkat Holdings Ltd., Yuval 63
Holdings (1995) Ltd., and Lior Hass and Iftah Sneh..........
10.9 Loan and Security Agreement, and schedule thereto, between
BackWeb Technologies Ltd. and Transamerica Business Credit
Corporation, dated as of December 24, 1998..................
10.10 Voting and Exchange Trust Agreement between BackWeb
Technologies Ltd., BackWeb Canada Inc. and the Trust Company
of Bank of Montreal, dated as of August 8, 1997.............
10.11 Fourth Amended and Restated Rights Agreement, dated as of
March 24, 1999..............................................
10.12 Agreement and Plan of Acquisition by and among BackWeb
Technologies Ltd., BackWeb Canada Inc., Lanacom Inc. and
Anthony Davis, dated as of July 1, 1997.....................
10.13+ Software License and Distribution Agreement for Embedded
Products, by and between BackWeb Technologies Ltd. and SAP
AG, dated March 17, 1999....................................
10.14+ Software Development and OEM License Agreement by and
between BackWeb Technologies Ltd. and Baan Development B.V.,
dated as of December 30, 1998...............................
21.1 Subsidiaries of the Registrant..............................
23.1* Consent of Ernst & Young LLP, Independent Auditors..........
23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit
5.1)........................................................
24.1* Powers of Attorney (included on page II-4)..................
</TABLE>

- -------------------------
* Filed herewith. All other exhibits have been previously filed and are
incorporated by reference to our Registration Statement on Form F-1 and all
amendments thereto filed with the Securities and Exchange Commission on March
25, 1999 and declared effective June 7, 1999.

+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.

II-3
<PAGE> 96

(b) FINANCIAL STATEMENT SCHEDULES.

All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements and notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 97

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto, duly
authorized, in the City of San Jose, California, on March 30, 2000.

BACKWEB TECHNOLOGIES LTD.

By: /s/ ELI BARKAT
------------------------------------
Eli Barkat
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hanan Miron and Eli Barkat, and each of
them his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendment or post-effective amendment to this
Registration Statement on Form F-1 or abbreviated registration statement
(including, without limitation, any additional registration filed pursuant to
Rule 462 under the Securities Act of 1933) with respect hereto and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ELI BARKAT Chief Executive Officer and Director March 30, 2000
- --------------------------------------- (Principal Executive Officer)
Eli Barkat

/s/ HANAN MIRON Chief Financial Officer (Principal March 30, 2000
- --------------------------------------- Financial And Accounting Officer)
Hanan Miron

/s/ CHARLES FEDERMAN Director March 30, 2000
- ---------------------------------------
Charles Federman

/s/ WILLIAM LARSON Director March 30, 2000
- ---------------------------------------
William Larson

/s/ JOSEPH GLEBERMAN Director March 30, 2000
- ---------------------------------------
Joseph Gleberman

/s/ GIL SHWED Director March 30, 2000
- ---------------------------------------
Gil Shwed

AUTHORIZED UNITED STATES REPRESENTATIVE
BACKWEB TECHNOLOGIES, INC.

By: /s/ ELI BARKAT March 30, 2000
----------------------------------
Eli Barkat
President
</TABLE>

II-5
<PAGE> 98

LIST OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
3.1 Articles of Association of Registrant.......................
3.2 Memorandum of Association of Registrant (English
translation)................................................
4.1 Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Rights Agreement................
4.3 Form of Liquidity Proposal between BackWeb Technologies,
Ltd. and the Exchangeable shareholders......................
5.1* Opinion of Naschitz, Brandes & Co. as to the validity of the
shares......................................................
10.1 1996 Israeli Share Option Plan (English translation)........
10.2 1996 U.S. Share Option Plan.................................
10.3 1998 U.S. Share Option Plan.................................
10.4 1999 Employee Stock Purchase Plan...........................
10.5 Lease Agreement for 3 Abba Hillel Street, Ramat Gan, Israel
(English translation).......................................
10.6 Lease Agreement for 34 Tuval Street, Ramat Gan, Israel
(English translation).......................................
10.7 Lease Agreement for 2077 Gateway Place, Suite 500, San Jose,
California..................................................
10.8 Form of Agreement by and among Interad (1995) Ltd. and Nir
Barkat Holdings Ltd., Eli Barkat Holdings Ltd., Yuval 63
Holdings (1995) Ltd., and Lior Hass and Iftah Sneh..........
10.9 Loan and Security Agreement, and schedule thereto, between
BackWeb Technologies Ltd. and Transamerica Business Credit
Corporation, dated as of December 24, 1998..................
10.10 Voting and Exchange Trust Agreement between BackWeb
Technologies Ltd., BackWeb Canada Inc. and the Trust Company
of Bank of Montreal, dated as of August 8, 1997.............
10.11 Fourth Amended and Restated Rights Agreement, dated as of
March 24, 1999..............................................
10.12 Agreement and Plan of Acquisition by and among BackWeb
Technologies Ltd., BackWeb Canada Inc., Lanacom Inc. and
Anthony Davis, dated as of July 1, 1997.....................
10.13+ Software License and Distribution Agreement for Embedded
Products, by and between BackWeb Technologies Ltd. and SAP
AG, dated March 17, 1999....................................
10.14+ Software Development and OEM License Agreement by and
between BackWeb Technologies Ltd. and Baan Development B.V.,
dated as of December 30, 1998...............................
21.1 Subsidiaries of the Registrant..............................
23.1* Consent of Ernst & Young LLP, Independent Auditors..........
23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit
5.1)........................................................
24.1* Powers of Attorney (included on page II-4)..................
</TABLE>

+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.

II-6

<PAGE> 1

EXHIBIT 5.1

B/422/65
Tel-Aviv, March 30, 2000

BackWeb Technologies Ltd.
3 Abba Hillel Street
Ramat Gan
Israel

Ladies and Gentlemen:

We refer to the registration statement on Form S-1 (the "Registration
Statement"), initially filed by BackWeb Technologies Ltd. (the "Company") on
March 30, 2000 with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. The Registration Statement relates to the offering by
the Selling Shareholders described in the Registration Statement of up to an
aggregate of 1,514,104 Ordinary Shares, nominal value NIS 0.03 per share, of the
Company, consisting of (i) up to 490,483 Ordinary Shares, nominal value NIS 0.03
per share, of the Company that are held by certain of the Selling Shareholders
(the "Outstanding Shares"), (ii) up to 1,023,621 Ordinary Shares, nominal value
NIS 0.03 per share, of the Company, that may be issued to certain of the Selling
Shareholders upon the conversion of their exchangeable shares of BackWeb Canada,
Inc. (the "Conversion Shares" and, together with the Outstanding Shares, the
"Shares").

As special Israeli counsel to the Company in connection with the offering
of the Shares pursuant to the Registration Statement, we have examined such
corporate records and documents and such questions of law as we have considered
necessary or appropriate for the purpose of this opinion. We are passing solely
upon the validity of the Shares to the extent expressly stated below, and are
not opining as to any other matter relating to the Registration Statement.

Upon the basis of such examination, we are of the opinion that:

1. The Outstanding Shares to be offered by certain of the Selling
Shareholders are legally and validly issued, fully paid and non-assessable; and

2. The Conversion Shares to be offered by certain of the Selling
Shareholders are duly and validly authorized and, when issued by the Company
upon conversion of the exchangeable shares and in the manner contemplated
thereby, will be legally and validly issued, fully paid and non-assessable.

We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus contained in the Registration Statement and elsewhere in the
Registration Statement and Prospectus.

Very truly yours,

/s/ Naschitz, Brandes & Co.
---------------------------
Naschitz, Brandes & Co.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 21, 2000 in the Registration Statement (Form
S-1) and related Prospectus of BackWeb Technologies Ltd., for the registration
of 1,514,104 ordinary shares.

/s/ ERNST & YOUNG LLP

Palo Alto, California
March 28, 2000