As filed with the Securities and Exchange Commission on ___________, 2000
Registration No. 333-46192
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
COMMTOUCH SOFTWARE LTD.
(Exact name of Registrant as specified in its charter)
Israel Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Hazoran Street
Poleg Industrial Park, P.O. Box 8511
Netanya 42504, Israel
011-972-9-863-6888
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
c/o Commtouch Software Inc.
James E. Collins, Chief Financial Officer
2029 Stierlin Court
Mountain View, California 94043-4655
(650) 864-2000
(Name, address and telephone number of agent for service)
Copies to:
Lior O. Nuchi Aaron M. Lampert
Venrice R. Palmer Noga Devesceri Spira
Irene Song Sharkansky Naschitz, Brandes & Co.
McCutchen, Doyle, 5 Tuval Street
Brown & Enersen, LLP Tel Aviv 67897 Israel
Three Embarcadero
San Francisco, CA 94111
Approximate date of commencement of proposed sale to the public:
From time to time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
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.
<CAPTION>
=============================== =========== ====================== =============================== =================
Proposed
Title of Each Class Maximum Proposed
of Securities Amount to be Offering Price Maximum Aggregate Amount of
Being Registered Registered Per Unit(1) Offering Price Registration Fee
------------------------------- ----------- ---------------------- ------------------------------- -----------------
<S> <C> <C> <C> <C>
ordinary shares, NIS 0.05 4,000,000 $19.65625 $78,625,000 $20,757
nominal value per share......
=============================== =========== ====================== =============================== =================
<FN>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) based on the average of the high and low prices of
the Company's ordinary shares as reported on the Nasdaq National Market System
on September 13, 2000.
</FN>
</TABLE>
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2
<PAGE>
Commtouch Software Ltd.
4,000,000 Ordinary Shares
[GRAPHIC OMITTED]
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With this prospectus, we may offer up to 4,000,000 of our ordinary shares. We
will provide specific terms for each offer and sale of the ordinary shares in
supplements to this prospectus. You should read this prospectus and the relevant
prospectus supplement carefully before investing in our ordinary shares. The
ordinary shares are quoted on the Nasdaq National Market under the symbol
"CTCH." On September 12, 2000, the closing sale price of the ordinary shares was
$20.19 per share.
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This investment involves risk. See "Risk Factors" beginning on page 7.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is ______ , 2000.
3
<PAGE>
TABLE OF CONTENTS
Page
----
Summary................................................................... 4
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 21
Dilution.................................................................. 22
Description of Share Capital.............................................. 23
Shares Eligible for Future Sale........................................... 27
Plan of Distribution...................................................... 29
Legal Matters............................................................. 32
Experts................................................................... 32
Where You Can Find More Information....................................... 32
Information Incorporated by Reference..................................... 33
Enforceability of Civil Liabilities....................................... 34
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SUMMARY
Unless otherwise indicated, all references in this prospectus to "Commtouch,"
"the Company," "we," "us" or "our" are to Commtouch Software Ltd. or its
wholly-owned subsidiaries, Commtouch Inc., Commtouch (UK) Ltd, Commtouch Latin
America, Inc. and Commtouch kk (Japan). Except as set forth in the Consolidated
Financial Statements and the Notes thereto incorporated by reference herein, or
as otherwise indicated, all information in this prospectus assumes the issuance
of 415,802 ordinary shares upon the assumed net exercise at an assumed share
price of $20.19 per share share of an in-the-money warrant to purchase 1,136,000
ordinary shares issued to Go2Net, Inc. at an exercise price of $12.80 per share.
4
<PAGE>
Commtouch
We are a leading global provider of outsourced integrated Web-based email and
messaging solutions to businesses. Our solutions are flexible, highly
customizable and enable us to satisfy the unique email and messaging needs of
our customers worldwide. Our customers are large and small businesses who offer
our Web-based email through their websites to their end users and employees.
Email is one of the most widely used applications on the Internet and has become
a primary platform for business and personal communication. According to
Forrester Research, over 80% of Internet users access their email while online,
making this activity the most popular use of the Internet. International Data
Corporation estimates that at the end of 1999 there were over 180 million
emailboxes in the United States and over 130 million outside of the United
States. IDC projects that by the end of 2003, these numbers will increase to
over 280 million emailboxes in the United States and over 305 million emailboxes
outside the United States.
As of June 30, 2000, we had over 300 global customers. We serve approximately
17.1 million active emailboxes.Our comprehensive Web-based email and messaging
solutions offer the following benefits:
o Extensive email features. Our services are easy to use, and
include a broad set of email capabilities, including a highly
integrated contact book and calendar.
o Ability to support hundreds of millions of emailboxes. Our
system architecture and software platform have been designed
to support hundreds of millions of emailboxes across millions
of domains while maintaining a highly reliable service.
o Customization. Our customers use our proprietary customization
tool to make the look and feel of their Web-based email
interface consistent with their own brand image.
o Rapidly deployable and cost-effective solutions. Our solutions
can be quickly implemented and can save our customers the
significant costs of developing and maintaining an email
service in-house.
o Extensive language capabilities. Our email services are
available in 25 languages. Additionally, we can support more
than one language on any of our customers' websites.
o Increased website usage. We believe that our services increase
the frequency and duration of users' visits to our customers'
websites.
o Online marketing capabilities. Our customers and third parties
selling goods and services online can leverage our services
and the demographic information of our end users to conduct
one-to-one direct marketing and targeted advertising
campaigns.
Because we have a limited operating history as a Web-based email service
provider, it is difficult to evaluate our business and prospects. We commenced
operations in 1991, but we began commercially selling Web-based email services
only in 1998 after changing our strategic focus from sale and service of
stand-alone email client software products for mainframe and personal computers.
This change required us to adjust our business processes and to restructure
Commtouch to become a Web-based email service provider. We incurred net losses
of approximately $3.5 million in 1997, $4.4 million in 1998 and $19.9 million in
1999. As of June 30, 2000, we had an accumulated deficit of approximately $49.9
million. We have not achieved profitability in any period, and we expect to
continue to incur net losses for the foreseeable future.
5
<PAGE>
Office Location
Our principal executive offices are located at 6 Hazoran Street, Poleg
Industrial Park, Netanya 42504, Israel, where our telephone number is
011-972-9-863-6888, and 2029 Stierlin Court, Mountain View, California
94043-4655, where our telephone number is (650) 864-2000. Our website addresses
are www.commtouch.com and www.zzn.com. The information contained on our websites
is not a part of this prospectus.
The Offering
Ordinary shares offered ............................ 4,000,000 shares
Ordinary shares outstanding after the offering ..... 20,198,028 shares
Use of proceeds .................................... Expansion of sales and
marketing activities;
capital expenditures;
expansion of research and
development activities;
expansion of international
operations; working
capital and other general
corporate purposes. See
"Use of Proceeds."
NASDAQ National Market Symbol ...................... CTCH
--------------
Except as set forth in the Consolidated Financial Statements and the Notes
thereto incorporated by reference in this prospectus and as otherwise specified,
all information in this prospectus is based on the number of shares outstanding
as of June 30, 2000, and:
o assumes the issuance of 415,802 ordinary shares upon the
assumed net exercise at an assumed share price of $20.19 per
share of the in-the-money warrant to purchase 1,136,000
ordinary shares issued to Go2Net, at an exercise price of
$12.80 per share;
o assumes the issuance of 104,246 ordinary shares issuable upon
exercise of options granted to executive officers and
directors within 60 days of June 30, 2000 at a weighted
average exercise price of $12.05 per share.
o with respect to financial information, is reported in U.S.
dollars;
and does not include:
o 2,118,119 ordinary shares issuable to employees and
consultants upon exercise of outstanding options under our
stock option plans and stock option agreements as of June 30,
2000 at a weighted average exercise price of $22.38 per share;
and
o 1,942,509 ordinary shares available for future grant or
issuance under our stock option and stock purchase plans as of
June 30, 2000.
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<PAGE>
RECENT DEVELOPMENTS
On November 2, 2000, we announced our definitive agreement to acquire Wingra
Technologies, a private company which is the leader in providing messaging
integration and migration solutions for large enterprises. To complete the
acquisition, which is anticipated to close in the fourth quarter of 2000, we
will issue approximately 1.25 million of our ordinary shares. For nearly ten
years Wingra has developed products and services for large corporations and
government agencies to enable disparate email and messaging systems to
communicate with one another and to ease the process of migration to outsourced
solutions. Wingra's portfolio of migrations tools and integration expertise
enables any enterprise, large and small, to migrate from one email system to
another or perform seamless standard-based migrations such as POP to POP and
IMAP to IMAP. The combined company will offer the full suite of Wingra's
enterprise products and services, including: Enterprise Migrator(TM), EZ
Migrator(TM), Missive(TM), and NetJunction(TM) and will continue to support all
major email platforms including Lotus cc:Mail, Lotus Notes, Microsoft Mail,
Microsoft Exchange, Novell Group Wise, and HP OpenMail. Wingra has established
itself as the migration expert, serving large corporations directly and through
a number of strategic partnership arrangements. Wingra will operate as a
wholly-owned subsidiary of Commtouch and will continue to provide its products
and services through its varied partnership channels.
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our ordinary shares. You should also consider the other information in and
incorporated by reference into this prospectus. If any of the following risks
actually occur, our business, financial condition, operating results or cash
flows could be materially adversely affected. This could cause the trading price
of our ordinary shares to decline, and you could lose part or all of your
investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives, beliefs,
expectations and intentions. In some cases, you can identify forward-looking
statements by our use of words such as "expects," "anticipates," "believes,"
"intends," "plans," "seeks" and "estimates" and similar expressions. You will
find forward-looking statements under the captions "Summary," "Risk Factors,"
"Use of Proceeds," and elsewhere in this prospectus and the information
incorporated by reference into this prospectus. Our actual results, levels of
activity, performance or achievements may differ materially from those expressed
or implied by these forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in
this prospectus and the information incorporated by reference into this
prospectus.
Risks Relating to the Company
Because we have a limited operating history as a Web-based email service
provider, it is difficult to evaluate our business and prospects.
We commenced operations in 1991, but we began commercially selling Web-based
email services only in 1998 after changing our strategic focus from the sale and
service of stand-alone email client software products for mainframe and personal
computers. This change required us to adjust our business processes and to
restructure Commtouch to become a Web-based email service provider. Therefore,
we have only a limited operating history as a provider of Web-based email
services upon which you can evaluate our business and prospects.
We have a history of losses and may never achieve profitability.
We incurred net losses of approximately $3.5 million in 1997, $4.4 million in
1998 and $19.9 million in 1999. As of June 30, 2000, we had an accumulated
deficit of approximately $49.9 million. We have not achieved profitability in
any period, and we expect to continue to incur net losses for the foreseeable
future.
7
<PAGE>
We have recently shifted our business model to take advantage of the revenue
opportunities in the corporate outsourcing market.
In recent months, we have started to sell our outsourced email and messaging
services into the corporate market. According to IDC estimates, the total
worldwide email outsourcing market will exceed $25 billion by 2005. While we
believe this market will result in higher revenues than those generated by our
consumer focused ventures, we cannot predict whether our ability to penetrate
the corporate outsource market will be successful in generating higher revenues.
There is a potential for slower than anticipated revenue growth because the
corporate market for outsourced email and messaging services is nascent,
adoption rates may not achieve expectations, the sales cycle may be longer, and
the demands of our customers may differ.
Our future email services revenues are unpredictable and our quarterly operating
results may fluctuate and fluctuations could adversely affect the value of your
investment.
Because we have a limited operating history in the provision of Web-based email
services and because of the emerging nature of the markets in which we compete,
our revenue is unpredictable. Our current and future expense levels are to a
large extent fixed. We may be unable to adjust spending quickly to compensate
for any revenue shortfall, and any significant revenue shortfall would have an
immediate negative effect on our results of operations and stock price.
A number of factors, many of which are enumerated in this "Risk Factors"
section, are likely to cause fluctuations in our operating results. Other
factors which may cause such fluctuations include:
o the size, timing and fulfillment of orders for our email
services;
o the receipt or payment of irregular or nonrecurring revenues
or expenses;
o our mix of service offerings, including our ability to
successfully implement new services;
o pricing of our services; and
o effectiveness of our customer support.
Because of these factors, period-to-period comparisons of our operating results
are not a good indication of our future performance. It is likely that our
operating results in some quarters will be below market expectations.
8
<PAGE>
We have recently changed our fee structure and cannot predict the effect this
change will have on our future revenues.
In recent months we have moved from a pricing strategy based primarily on a
share of advertising revenues with a minimum annual service fee to one based
primarily on charging a per-emailbox fee with a minimum annual commitment fee.
While we believe that this new fee structure will result in a higher and more
predictable revenue stream compared with one based on a share of advertising
revenues, we cannot predict whether this new pricing strategy will in fact be
successful in generating higher and more predictable revenues. We may need to
change our pricing strategy again from time to time.
If the market for our Web-based email services does not grow rapidly, we will
fail to generate revenues.
Our success will depend on the widespread acceptance and use of Web-based email
by our customers as a means to increase the value of their services or as a
means of communication. The market for Web-based email services is new and
rapidly evolving. We cannot estimate the size or growth rate of the potential
market for our service offerings. If the market for Web-based email fails to
grow or grows more slowly than we currently anticipate, our business will suffer
dramatically. Even if that market grows, our service may not achieve broad
market acceptance. Since we have only recently introduced our services, we do
not have sufficient experience to evaluate whether they will achieve broad
market acceptance. Also, because all of our revenue is derived directly or
indirectly from our Web-based email solutions, if that market does not grow, our
business will likely fail.
If we do not expand our sales and marketing organization we will not be able to
increase our revenues.
Our ability to increase our revenues will depend on our ability to successfully
expand our sales and marketing organization. The complexity of our Internet
messaging services and the emerging nature of the Web-based email market require
highly trained sales and marketing personnel to educate prospective customers
regarding the use and benefits of our services. The majority of our sales and
marketing personnel have only recently joined Commtouch and have limited
experience working together. It will take time for these employees to learn how
to market our solutions and to be integrated into our sales and marketing
organization. Some of them may not succeed in making this transition.
Additionally, we are planning to introduce additional services that we have no
experience marketing and will rely on these services to produce a substantial
portion of our revenues in the future. As a result of these factors, our sales
and marketing organization may not be able to compete successfully against the
bigger and more experienced sales and marketing organizations of our
competitors.
9
<PAGE>
Even if our email services are successful with our customers, we may not derive
revenue from the users of the emailboxes, which would prevent our business from
growing.
Even if our services are a success with our customers, we will not succeed if we
do not derive revenue from the email users that our customers give us access to.
We plan to derive revenue from these email users primarily by charging our
customers per-emailbox fees for our email services, as well as by selling access
to email users for direct marketing services and from the sale of advertisements
that the email users will see. If one or more of these revenue sources is not
successful, we will not succeed. To date, we have generated only limited revenue
from these potential revenue sources and they may not be successful. Our
existing and potential customers may not be willing to pay for our email
services. Advertisers and direct marketers may not accept email as a means of
placing advertisements and conducting direct marketing and email users may not
want to receive direct marketing materials.
Our ability to generate revenues from the emailbox base that our customers bring
to us also depends on the emailboxes being used on a regular basis. On an
ongoing basis, many of our end users will not regularly use their emailboxes,
and a significant number will cease using our services each month. Accordingly,
there may be no relationship between the number of active emailboxes and our
revenues.
We have a strategic relationship with Go2Net pursuant to which we issued a
warrant to Go2Net that diluted our shareholders, but we may not realize
substantial revenues or other business benefits from this or any similar
transaction.
We entered into a strategic relationship with Go2Net simultaneously with the
closing of our initial public offering. Our Customized Web-Based Email Service
Agreement with Go2Net provides that we share revenues from advertising and
premium services offered to Go2Net's end users through our email service. The
terms of this agreement are substantially the same as our commercial agreements
with other customers except that we have agreed that Go2Net will receive a
materially greater portion of advertising revenues than other customers receive
under other similar agreements. As part of this transaction, we issued to Go2Net
a warrant to purchase up to 1,136,000 ordinary shares at an exercise price of
$12.80 per share. This warrant is exercisable at any time until it expires on
July 16, 2004. We agreed to register these shares, the warrant and the shares
issuable upon exercise of the warrant with the Securities and Exchange
Commission and the registration statement relating to those securities became
effective on January 7, 2000. Exercise of the warrant will cause existing
investors significant dilution. However, we may not realize any revenues or any
other business benefits from this strategic relationship with Go2Net because we
and Go2Net may not be able to sell significant amounts of advertising and
premium Web-based email services to Go2Net's end users. In the future, we may
have to issue in-the-money warrants to acquire our ordinary shares to customers
who provide us with a large base of potential end users. We may also have to
provide these customers with more favorable commercial terms than we have
previously provided to our customers. The issuance of in-the-money warrants and
the grant of more favorable terms to customers may further dilute our
shareholders, increase our operating loss in the future and cause our stock
price to fall.
10
<PAGE>
We entered into an email services agreement with Microsoft Corporation in
connection with which we issued a warrant to Microsoft that diluted our
shareholders, but we may not realize substantial revenues or other business
benefits from this transaction.
We entered into an Email Services Agreement dated October 26, 1999 with
Microsoft Corporation. Under this agreement, Commtouch will, at Microsoft's
option, customize, host and maintain email services for Microsoft websites in
the U.S. and internationally. Microsoft will pay one-time fees for the set-up
and customization of the email service for each website with respect to which
Microsoft chooses to use our services, as well as quarterly service fees for the
email service based on the number of mailboxes hosted. The term of the agreement
shall continue for 12 months after the first commercial distribution date of the
email service and Microsoft may extend the initial term on a quarterly or annual
basis upon 60 days prior written notice. The agreement may be terminated by
Microsoft for convenience upon 90 days' prior written notice, or by either party
upon a material breach by the other party upon the terms specified in the
agreement. In connection with the agreement, Commtouch issued to Microsoft a
warrant, exercisable until December 29, 1999, to purchase 707,965 of Commtouch's
ordinary shares at an exercise price of $28.25 per share for an aggregate
exercise price of approximately $20.0 million. On December 29, 1999, Microsoft
exercised the warrant and now holds 707,965 ordinary shares. We agreed to
register these shares with the Commission. The registration became effective on
January 7, 2000. However, we may not realize any revenues or any other business
benefits from this transaction because Microsoft is not obligated to use our
services with respect to any website and has not agreed to provide us with any
other business benefits.
We depend on our customer relationships, which are based on relatively short
term, nonexclusive agreements, and the loss of one or more customers could harm
our business.
Our ability to increase revenues depends upon successful marketing of our
services through new and existing customers. Our agreements with our customers
generally can be terminated for any or for no reason after the first year. The
agreements with our customers are non-exclusive and do not restrict them from
introducing competing services. Also, some of our relationships allow
termination earlier than one year. Loss of one or a few key customers could
damage our reputation and hurt our ability to develop new relationships. If we
fail to develop new relationships or if our customers terminate or do not renew
their contracts with us, our business will suffer, as we will lose potential
revenue from the lost customers and from their underlying base of email users.
Revenues from MyPoints, a permission based email service company, represented
11% of our revenues in 1999. Revenues from TargetMail, a permission based email
marketing company, represents 19% of our Revenues for the quarters ended June
30, 2000. Customers may provide us with a large number of users but pay a
relatively small minimum annual service fee.
11
<PAGE>
We have many established competitors who are offering the same or similar
services and we will not be able to compete effectively against them if they
provide superior services at better prices.
The market for Web-based email services is intensely competitive and we expect
it to be increasingly competitive. Increased competition could result in pricing
pressures, reduced operating margins and loss of market share, any of which
could cause our business to suffer.
In the market for email and messaging services, we compete directly with
Web-based email service providers, including Critical Path, Mail.com and
USA.NET, as well as with companies that develop and maintain in-house email
solutions. In addition, companies such as Software.com currently offer email
software products to ISPs, web hosting companies, web portals and corporations.
Furthermore, numerous small-scale email providers offer low-cost basic services,
but without scalable systems or value-added functionality. These and other
companies could potentially leverage their existing capabilities and
relationships to enter the email service industry by redesigning their system
architecture, pricing and marketing strategies to sell through to the entire
market. The ability of these competitors to offer a broader suite of
complementary services may give them a considerable advantage over us. In the
future, ISPs, web hosting companies and outsourced application companies may
broaden their service offerings to include outsourced email.
Our market's level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter the
market. In the future, as we expand our service offerings, we may encounter
increased competition in the development and delivery of these services. Many of
our current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and greater financial, marketing and
other resources than we do and may enter into strategic or commercial
relationships on more favorable terms. Further, certain of our competitors may
offer services at or below cost. In addition, new technologies and the expansion
of existing technologies may increase competitive pressures on us. We may not be
able to compete successfully against current and future competitors and
increased competition may result in reduced operating margins and loss of market
share.
We are experiencing rapid internal growth which has and likely will strain our
management resources.
We recently began to expand our operations rapidly and intend to continue this
expansion. The number of our employees increased from 45 on December 31, 1998 to
214 on December 31, 1999. This expansion has placed, and is expected to continue
to place, a significant strain on our managerial, operational and financial
resources. To manage any further growth, we will also need to improve or replace
our existing operational, customer service and financial systems, procedures and
controls.
12
<PAGE>
The loss of our key employees would adversely affect our ability to manage our
business, therefore causing our operating results to suffer and the value of
your investment to decline.
Our success depends on the skills, experience and performance of our senior
management and other key personnel, many of whom have worked together for only a
short period of time. The loss of the services of any of our senior management
or other key personnel, including Gideon Mantel, our Chief Executive Officer,
Isabel Maxwell, the President of our United States subsidiary, and Amir Lev, our
President and Chief Technical Officer, could materially and adversely affect our
business. We do not have employment agreements with any of our senior management
or other key personnel. We cannot prevent them from leaving at any time. We do
not maintain key-person life insurance policies on any of our employees.
Because our business is based on communications and messaging services, we are
susceptible to system interruptions and capacity constraints, which could harm
our business and reputation.
Our ability to successfully receive and send our end users' email messages and
provide acceptable levels of service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems and those of our outsourced hosting service. In addition, the growth in
the use of the Internet has caused frequent interruptions and delays in
accessing the Internet and transmitting data over the Internet. We do not
possess insurance to cover losses caused by unplanned system interruptions and
software defects. In the past, we have experienced some interruptions in our
email service. We believe that these interruptions will continue to occur from
time to time. These interruptions may be due to hardware failures, unsolicited
bulk email (also known as "spam"), operating system failures, inadequate
Internet infrastructure capacity, and other mechanical and human causes. We
expect to experience occasional, temporary capacity constraints due to sharply
increased traffic, which may cause unanticipated system disruptions, slower
response times, impaired quality and degradation in levels of customer service.
If we experience frequent or long system interruptions that reduce our ability
to provide email services, we may have fewer users of our email services. In
addition, we have entered into service agreements with some of our customers
that require minimum performance standards. If we fail to meet these standards,
our customers could terminate their relationships with us.
We must continue to expand and adapt our network infrastructure to changing
requirements and increasing numbers of end users. The expansion and adaptation
of our network infrastructure will require substantial financial, operational
and managerial resources. In addition, we depend on improvements being made to
the entire Internet infrastructure to alleviate overloading and congestion of
the Internet. The ability of our network to continue to connect and manage an
expanding number of customers, end users and messages at high transmission
speeds is unproven and uncertain. We face risks related to our network's and the
Internet's ability to operate with higher use levels while maintaining expected
performance levels.
13
<PAGE>
Although we are a leading global provider in our particular field of outsourced,
Web-based email, we are relatively small competitor in the electronic messaging
industry as a whole. As a result, we may not have the resources to adapt to the
changing technological requirements and the shifting consumer preferences of our
industry.
The Internet messaging industry is characterized by rapid technological change,
changes in end user requirements and preferences, and the emergence of new
industry standards and practices that could render our existing services and
proprietary technology obsolete. Our success depends, in part, on our ability to
continually enhance our existing email and messaging services and to develop new
services, functions and technology that address the increasingly sophisticated
and varied needs of our prospective customers. The development of proprietary
technology and necessary service enhancements entails significant technical and
business risks and requires substantial expenditures and lead-time. We may not
be able to keep pace with the latest technological developments. We may not be
able to use new technologies effectively or adapt our services to customer or
end user requirements or emerging industry standards. Also, in addition to
addressing changing technologies and end user needs, we must also do so more
quickly than our competition.
Our services may be adversely affected by software defects, which could cause
our customers or end users to stop using our services.
Our service offerings depend on complex software. Complex software often
contains defects, particularly when first introduced or when new versions are
released. Although we conduct extensive testing, we may not discover software
defects that affect our new or current services or enhancements until after they
are deployed. Although we have not experienced any material software defects to
date, it is possible that, despite testing by us, defects may exist in the
software we use. These defects could cause service interruptions that could
damage our reputation or increase our service costs, cause us to lose revenue,
delay market acceptance or divert our development resources, any of which could
cause our business to suffer. Some of our services are based on software
provided by third parties. We have no control over the quality of such software.
We rely on the integrity of our network security, which may be susceptible to
breaches that could harm our reputation and business.
A fundamental requirement for online communications is the secure transmission
of confidential information over public networks. Third parties may attempt to
breach our security or that of our customers. Despite our implementation of
third party encryption technology and network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays or loss of data. We may
be liable to our customers and their end users for any breach in our security,
including claims for impersonation or other similar fraud claims, as well as
claims for other misuses of personal information, for example for unauthorized
marketing purposes. Also, such a breach could harm our reputation and
consequently our business. We may also be required to expend significant capital
and other resources to license encryption technology and additional technologies
to protect against security breaches or to alleviate problems caused by any
breach.
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Our failure to prevent security breaches could have a material adverse effect on
our business and operating results.
In addition, the Federal Trade Commission and several states have been
investigating some Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced, if our privacy practices are
investigated or if our privacy policies are viewed unfavorably by users or
potential users.
If we fail to adequately protect our intellectual property rights or face a
claim of intellectual property infringement by a third party, we could lose our
intellectual property rights or be liable for significant damages.
We regard our copyrights, service marks, trademarks, trade secrets and similar
intellectual property as critical to our success, and rely on trademark and
copyright law, trade secret protection and confidentiality or license agreements
with our employees and customers to protect our proprietary rights. Third
parties may infringe or misappropriate our copyrights, trademarks and similar
proprietary rights. Although we have not filed any patent applications, we may
seek to patent certain software or other technology in the future. Any such
future patent applications may not be issued with the scope of the claims we
seek, or at all. We cannot be certain that our software does not infringe issued
patents that may relate to our software products. In addition, because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to our software products.
Despite our precautions, unauthorized third parties may copy certain portions of
our technology or reverse engineer or obtain and use information that we regard
as proprietary. End user license provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed program may be unenforceable
under the laws of some jurisdictions and foreign countries. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technology.
Our ZapZone Network service allows webmasters to select the email service name
of their choice (although we reserve the right to eliminate their account or to
change their email service name).
There is, therefore, the possibility that they will select email service names
that may infringe the rights of others. We have received several complaints
about ZapZone Network service webmasters' registered email service names and we
have referred these complainants directly to the ZapZone Network service
subscribers who are allegedly engaging in the infringing activities. However,
these complainants may seek to enforce their rights against us in addition to,
or instead of, the infringing webmasters.
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We may have liability for email content and we may not have adequate liability
insurance.
As a provider of email services, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims based
on the nature and content of the materials transmitted via email. We do not and
cannot screen all of the content generated by end users, and we could be exposed
to liability with respect to this content. Some foreign governments, such as the
government of Germany, have enforced laws and regulations related to content
distributed over the Internet that are more strict than those currently in place
in the United States. Although we carry general and professional liability
insurance coverage, our insurance may not adequately protect us from such
claims. Any imposition of liability, particularly liability that is not covered
by insurance, or is in excess of insurance coverage, could damage our reputation
and hurt our business and operating results, or could result in criminal
penalties.
Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our services or increase our cost of doing
business.
There are currently few laws and regulations directly applicable to the Internet
and commercial email services. However, a number of laws have been proposed
involving the Internet, including laws addressing user privacy, pricing,
content, copyright, antitrust, distribution and characteristics and quality of
products and services. Further, the growth and development of the market for
email may prompt calls for more stringent consumer protection laws that may
impose additional burdens on companies conducting business online. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. The adoption of
additional laws or regulations, or the application of existing laws or
regulations to the Internet, may impair the growth of the Internet or commercial
online services. This could decrease the demand for our services and increase
our cost of doing business, or otherwise harm our business and operating
results.
Due to the global nature of the Web, it is possible that, although our
transmissions currently originate in California, the governments of other states
or foreign countries might attempt to regulate our transmissions or levy sales
or other taxes relating to our activities. The European Union recently adopted a
directive addressing data privacy that may result in limits on the collection
and use of user information.
On October 20, 1999, The Federal Trade Commission issued the final rule to
implement the Children's Online Privacy Protection Act of 1998 ("COPPA"). The
main goal of the COPPA and the rule is to protect the privacy of children using
the Internet. As of April 21, 2000, certain commercial websites and online
services directed to, or that knowingly collect information from, children must
obtain parental consent before collecting, using, or disclosing personal
information from children under 13. The COPPA regulations could reduce our
ability to engage in direct marketing. The cost to the Company of complying with
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the new requirements is not known and such cost may have a material effect upon
operating results or financial condition.
We may need additional capital and raising additional capital may dilute
existing shareholders.
We have invested heavily in technology and infrastructure development. We expect
to continue to spend substantial financial and other resources on developing and
introducing new service offerings and expanding our sales and marketing
organizations, strategic relationships and operating infrastructure. We expect
that our expenses will continue to increase in absolute dollars. If our revenues
do not correspondingly increase, our operating results and financial condition
will be negatively affected. We may never attain sufficient revenues to achieve
profitability. If we do achieve profitability, we may not sustain or increase
profitability in the future. This may, in turn, cause our stock price to
decline.
We believe that our existing capital resources will enable us to maintain our
current and planned operations for at least the next 12 months. However, we may
be required to raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. Such financing may not be
available in sufficient amounts or on terms acceptable to us and may cause
dilution to existing shareholders. Also, we may raise additional capital in the
future by issuing securities that have superior rights and preferences to our
ordinary shares.
Purchasers of our ordinary shares may suffer immediate and substantial dilution.
The offering price of the shares may be substantially higher than the book value
per share of our ordinary shares. Some elements of our market value do not
originate from measurable transactions. Therefore, there is not a corresponding
rise in "book," or historical cost accounting, value for our rise in market
value, if any. Examples of these elements include the perceived growth prospects
of our core commercial market, perceived growth prospects of our Web-based email
services and our perceived competitive position within the market for Web-based
email services. Purchasers of the ordinary shares will experience immediate
dilution to the extent the purchase price of the shares is lower than the pro
forma net tangible book value per share of ordinary shares. Purchasers may also
experience additional dilution upon the exercise of outstanding stock options
and warrants to purchase our ordinary shares.
Our directors, executive officers and principal shareholders will be able to
exert significant influence over matters requiring shareholder approval and
could delay or prevent a change of control.
Our directors and affiliates of our directors, our executive officers and our
shareholders who currently own over five percent of our ordinary shares
beneficially own approximately 30% of our outstanding ordinary shares.
Immediately following the offering, they will own approximately 20% of our
outstanding ordinary shares (whether or not the underwriters' overallotment
option is exercised in full). If they vote together, these shareholders will be
able to exercise significant influence over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership could also delay or
prevent a change in control of Commtouch.
Go2Net and Vulcan Ventures beneficially own approximately 10.6% of our
outstanding ordinary shares (assuming exercise of the Go2Net warrant on a net
exercise basis). Vulcan Ventures is a significant shareholder of Go2Net.
Accordingly, Go2Net and Vulcan Ventures will be able to significantly influence
and possibly exercise control over most matters requiring
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approval by our shareholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control. Go2Net and Vulcan
also have the right to name one director to our Board as long as they continue
to hold at least 620,022 shares, including the shares issuable upon exercise of
the Go2Net warrant. They have named Thomas Camp to the Board under this
provision. In addition, conflicts of interest may arise as a consequence of
Go2Net's control relationship with us, including:
o conflicts between Go2Net and Vulcan Ventures, as significant
shareholders, and our other shareholders, whose interests may
differ with respect to, among other things, our strategic
direction or significant corporate transactions;
o conflicts related to corporate opportunities that could be
pursued by us, on the one hand, or by Go2Net, on the other
hand; or
o conflicts related to existing or new contractual relationships
between us, on the one hand, and Go2Net and its other
affiliates, on the other hand.
Our business and operating results could suffer if we do not successfully
address the risks inherent in the expansion of our international operations.
At present, we have offices in the United States, Israel and the United Kingdom.
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. We have limited
experience in international operations and may not be able to compete
effectively in international markets. The Company will face risks inherent in
conducting business internationally, such as:
o difficulties and costs of staffing and managing international
operations;
o fluctuations in currency exchange rates;
o imposition of currency exchange controls;
o differing technology standards;
o export restrictions, including export controls relating to
encryption technologies;
o difficulties in collecting accounts receivable and longer
collection periods;
o unexpected changes in regulatory requirements;
o political and economic instability;
o potentially adverse tax consequences; and
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o potentially reduced protection for intellectual property
rights.
Any of these factors could adversely affect the Company's international
operations and, consequently, business and operating results. Specifically,
failure to successfully manage international growth could result in higher
operating costs than anticipated or could delay or preclude altogether the
Company's ability to generate revenues in key international markets.
Substantial sales of our ordinary shares could adversely affect our stock price.
The sale, or availability for sale, of substantial quantities of our ordinary
shares may have the effect of depressing its market price by potentially
introducing a large number of sellers into the market. A large number of our
ordinary shares are currently eligible for resale. In addition a significant
number of shares will be eligible for resale at various dates in the future. See
"Shares Eligible for Future Sale."
Risks Relating to Operations in Israel
We have important facilities and resources located in Israel, which has
historically experienced severe economic instability and military and political
unrest.
We are incorporated under the laws of the State of Israel. Our principal
research and development facilities are located in Israel. Although
substantially all of our sales currently are being made to customers outside
Israel, we are nonetheless directly influenced by the political, economic and
military conditions affecting 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, operating results and financial
condition.
Israel's economy has been subject to numerous destabilizing factors, including a
period of rampant inflation in the early to mid-1980's, low foreign exchange
reserves, fluctuations in world commodity prices, military conflicts and civil
unrest. In addition, Israel and companies doing business with Israel have been
the subject of an economic boycott by the Arab countries since Israel's
establishment. These restrictive laws and policies may have an adverse impact on
our operating results, financial condition or expansion of our business.
Since the establishment of the State of Israel in 1948, a state of hostility has
existed, varying in degree and intensity, between Israel and the Arab countries.
Although Israel has entered into various agreements with certain Arab countries
and the Palestinian Authority, and various declarations have been signed in
connection with efforts to resolve some of the economic and political problems
in the Middle East, we cannot predict whether or in what manner these problems
will be resolved.
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Our results of operations may be negatively affected by the obligation of key
personnel to perform military service.
In addition, certain of our officers and 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. Although Commtouch has
operated effectively under these requirements since its inception, we cannot
predict the effect of these obligations on Commtouch in the future. Our
operations could be disrupted by the absence for a significant period of one or
more of our officers or key employees due to military service.
Because a substantial portion of our revenues are generated in U.S. dollars,
while a significant portion of our expenses are incurred in New Israeli Shekels,
our results of operations may be adversely affected by inflation and currency
fluctuations.
We generate a substantial portion of our revenues in U.S. dollars but incur a
significant portion of our expenses, principally salaries and related personnel
expenses, in New Israeli Shekels, commonly referred to as NIS. As a result, we
are exposed to the risk that the rate of inflation in Israel will exceed the
rate of devaluation of the NIS in relation to the dollar or that the timing of
any devaluation may lag behind inflation in Israel. While in recent years the
rate of devaluation of the NIS against the dollar has exceeded the rate of
inflation, which is a reversal from prior years, we cannot be sure that this
reversal will continue. If the dollar cost of our operations in Israel
increases, our dollar-measured results of operations will be adversely affected.
Our operations also could be adversely affected if we are unable to guard
against currency fluctuations in the future. Accordingly, we may enter into
currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar against the NIS. These measures,
however, may not adequately protect us from material adverse effects due to the
impact of inflation in Israel.
Israeli courts might not enforce judgments rendered outside of Israel and it
might therefore be difficult for an investor to recover any judgment against any
of our officers or directors resident in Israel.
We are organized under the laws of Israel, and we maintain significant
operations in Israel. Certain of our officers and directors named in this
prospectus reside outside of the United States. Therefore, you might not be able
to enforce any judgment obtained in the U.S. against us or any of such persons.
You might not be able to bring civil actions under U.S. securities laws if you
file a lawsuit in Israel. However, we have been advised by our Israeli counsel
that, subject to certain limitations, Israeli courts may enforce a final
judgment of a U.S. court for liquidated amounts in civil matters after a hearing
in Israel. We have appointed Commtouch Inc., our U.S. subsidiary, as our agent
to receive service of process in any action against us arising out of this
offering. We have not given our consent for our agent to accept service of
process in connection with any other claim and it may therefore be difficult for
an investor to effect service of process against us or any of our non-U.S.
officers, directors and experts relating to any other claims. If a foreign
judgment is enforced by an Israeli court, it will be payable in Israeli
currency.
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Provisions of Israeli law may delay, prevent or make difficult an acquisition of
Commtouch, which could prevent a change of control and therefore depress the
price of our stock.
Israeli corporate law regulates mergers, votes required to approve mergers and
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.
The new Israeli Companies Law imposes substantial duties on shareholders and 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. The new law includes
provisions imposing substantial duties on certain controlling and
non-controlling shareholders. In addition, 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.
-------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, ordinary shares only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our ordinary shares.
USE OF PROCEEDS
We intend to use the proceeds of this offering for the following:
o expansion of our sales and marketing activities;
o capital expenditures, including purchase of equipment, primarily for our
hosting facilities;
o expansion of research and development activities;
o expansion of our international operations; and
o working capital and other general corporate purposes.
The amounts and timing of these expenditures will vary significantly depending
on a number of factors, including, but not limited to, the amount of cash
generated by our operations and the market response to the introduction of any
new service offerings. In addition, we may use a portion of the net proceeds of
this offering from time to time to acquire or invest in businesses, products,
services or technologies complementary to our current business, through mergers,
acquisitions, joint ventures or otherwise. Accordingly, our management will
retain broad discretion as to the use and allocation of the net proceeds of this
offering. Pending the above uses, we intend to invest the net proceeds of this
offering in short-term, interest-bearing investment grade securities.
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DILUTION
Our net tangible book value as of June 30, 2000 was $78.8 million or $5.02 per
ordinary share. Net tangible book value per share is determined by dividing the
amount of our total tangible assets less total liabilities by the number of
ordinary shares outstanding at that date. Dilution in net tangible book value
per share represents the difference between the amount per share paid by
purchasers of ordinary shares in the offering made hereby and the net tangible
book value per ordinary share immediately after the completion of this offering.
After giving effect to the sale of 4,000,000 ordinary shares by Commtouch in
this offering (at an assumed public offering price of $20.19 per share and after
deducting our estimated offering expenses), and assuming an estimated 415,802
ordinary shares issuable upon the net exercise of an in-the-money warrant held
by Go2Net to purchase 1,136,000 ordinary shares at an exercise price of $12.80,
the pro forma net tangible book value of Commtouch at June 30, 2000 would have
been $158.5 million, or $7.88 - per share. This represents an immediate increase
in pro forma as adjusted net tangible book value of $2.86 per share to the
existing shareholders and an immediate dilution of $12.31 per share to new
investors purchasing ordinary shares in this offering. The following table
illustrates this per-share dilution:
Assumed offering price per share............................. $20.19
Net tangible book value per share as of
June 30, 2000.............................................. $ 5.02
Increase in pro forma as adjusted net
tangible book value per share attributable
to this offering............................................. 7.41
Decrease in pro forma as adjusted net tangible
book value per share attributable to the
exercise of the in-the-money
warrant held by Go2Net....................................... (0.12)
Pro forma as adjusted net net tangible book
value per share after the offering........................... 7.88
--------
Dilution per share to new investors.......................... $12.31
The above table assumes no exercise of options after June 30, 2000. As of June
30, 2000, there were outstanding options to purchase a total 2,118,119 ordinary
shares under our stock option plans and option agreements with our employees and
consultants, and executive officers and directors, at a weighted average
exercise price of $22.38 per share, and 1,942,509 ordinary shares available for
future grant under our stock option grants. If all of these outstanding options
had been exercised on June 30, 2000, our pro forma net tangible book value on
that date would have been $205.9 million, or $9.27 per share, the increase in
net tangible book value per share attributable to the existing investors would
have been $4.25 per share and the dilution in net tangible book value to new
investors would have been $10.92 per share.
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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, copies of which have been
filed as exhibits to the Registration Statement of which this prospectus forms a
part, subject to amendment of our Articles of Association from time to time.
As of June 30, 2000, our authorized share capital consisted of 40,000,000
ordinary shares, NIS 0.05 par value. As of June 30, 2000, there were 20,198,028
ordinary shares (assuming the net exercise of the Go2Net warrant and the
exercise of directors' and executive officers' stock options) and no preferred
shares issued and outstanding.
Description of Ordinary Shares
All issued and outstanding ordinary shares of Commtouch are, and the ordinary
shares offered upon exercise of the Go2Net warrant when issued and paid for will
be, duly authorized and validly issued, fully paid and nonassessable. The
ordinary shares do not have preemptive rights. Neither our Memorandum of
Association, Articles of Association 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 are entitled to their full
proportion of any cash or share dividend declared from the date of this
prospectus.
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 in proportion to the sums paid up or credited as
paid up on account of the nominal value of their respective holdings of the
shares in respect of which the dividend is being paid (without taking into
account the premium paid up on the shares) out of assets legally available
therefor and, in the event of our winding up, to share ratably in all assets
remaining after payment of liabilities in proportion to the nominal value of
their respective holdings of the shares in respect of which such distribution is
being made, subject to applicable law. Our Board of Directors may declare
interim dividends and recommend a final annual dividend only out of profits 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.
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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. Once the creation of a class of shares with preference
rights has been approved, the Board of Directors may issue preferred shares,
unless the Board is limited from doing so by the Articles of Association or a
contractual provision.
An annual general meeting must be held once every calendar year at such time
(not more than 15 months after the last preceding annual general meeting) and at
such place, either within or outside 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 one-quarter 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 the next week at the same time and place, or to such time and
place as the Board of Directors may determine. At such reconvened meeting any
two shareholders present in person or by proxy (and not in default under the
articles) will constitute a quorum. Shareholder resolutions 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.
Anti-Takeover Provisions Under Israeli Law
Under the Companies Law, a merger is generally required to be approved by the
shareholders and board of directors of each of the merging companies. If the
share capital of the company that will not be the surviving company is divided
into different classes of shares, the approval of each class is also required.
The Companies Law provides that the articles of association of companies, such
as ours, that were incorporated prior to February 1, 2000 are deemed to include
a provision whereby the approval of a merger requires a majority of three
quarters of those present and voting at a general meeting of shareholders. In
addition, a merger can be completed only after all approvals have been submitted
to the Israeli Registrar of Companies and at least seventy days have passed from
the time that a proposal for approval of the merger was filed with the
Registrar.
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 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 tender offer if as a result of the acquisition the purchaser
would become a 45% shareholder of the company, unless someone else already holds
a majority of the voting power 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,
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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:
o there is a limitation on acquisition of any level of control
of the company; or
o 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.
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 seven days'
prior notice of shareholder meetings. A special resolution can be adopted only
if shareholders are given 21 days' prior notice of the meeting at which such
resolution will be voted on (unless all shareholders entitled to vote agree that
the meeting may be held on a shorter notice period). For purposes of determining
the shareholders entitled to notice and to vote at such meeting, the Board of
Directors may fix the record date not exceeding 90 days prior to the date of any
general 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 Commtouch by a special resolution
subject to the consent in writing of the holders of the issued shares of the
class, or by the adoption of a special resolution passed at a separate general
meeting of the holders of the shares of such class.
Description of Warrants
Description of Go2Net Warrant
In connection with the Customized Web-based Email Service Agreement entered into
between Commtouch and Go2Net, Commtouch issued to Go2Net a fully vested,
non-forfeitable, warrant to purchase 1,136,000 ordinary shares at a per-share
exercise price of $12.80, subject to adjustment as provided in the warrant. The
warrant is exercisable at any time until it expires on July 16, 2004. At
Go2Net's option, the warrant is exercisable pursuant to a cashless exercise
based on the average closing price of the ordinary shares for the five days
preceding the exercise. The Company extended registration rights to Go2Net
covering the warrant and the shares issuable upon exercise of the warrant and a
registration statement relating to the resale of the shares and the warrant
became effective on January 7, 2000. The holder of the warrant is required to
avoid becoming a 10% or greater shareholder of the Company as a result of any
exercise of the warrant.
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The holder of the warrant is given the opportunity to profit from a rise in the
market price of the ordinary shares and the warrant. To the extent that the
warrant is exercised, dilution of the interests of the Company's shareholders
will occur. In addition, the warrant includes provisions which adjust the
exercise and price upon the occurrence of certain events which might otherwise
dilute the value of the warrant.
Registration Rights
The holders of convertible preferred shares which were converted into 7,109,800
ordinary shares (the "Registrable Securities") upon effectiveness of the initial
public offering, have certain rights to register those shares under the
Securities Act. If requested by holders of a majority of the Registrable
Securities after the second anniversary of the date of the initial public
offering, Commtouch must file a registration statement under the Securities Act
covering all Registrable Securities requested to be included by all holders of
such Registrable Securities. Commtouch may be required to effect up to two such
registrations. Commtouch has the right to delay any such registration for up to
120 days under certain circumstances, but not more than once during any 12-month
period.
In addition, if Commtouch proposes to register any of its ordinary shares under
the Securities Act other than in connection with a company employee benefit plan
or a corporate reorganization pursuant to Rule 145 under the Securities Act, or
a registration on any registration form that does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the holders of Registrable Securities may require Commtouch to
include all or a portion of their shares in such registration, although the
managing underwriter of any such offering has certain rights to limit the number
of shares in such registration.
Further, a majority of the holders of Registrable Securities may require
Commtouch to register all or any portion of their Registrable Securities on Form
F-3 when such form becomes available to Commtouch, subject to certain conditions
and limitations. All expenses incurred in connection with all registrations
(other than fees, expenses and disbursements of counsel retained by the holders
of the Registrable Shares, and underwriters' and brokers' discounts and
commissions) will be borne by Commtouch.
The registration rights described in the preceding three paragraphs expire five
years after the closing date of our initial public offering.
In addition, the Company granted registration rights to Go2Net, Vulcan Ventures
and Microsoft pursuant to which their holdings in the Company (including the
warrant issued to Go2Net) were registered on January 7, 2000.
26
<PAGE>
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, Commtouch must file with the
Israeli Registrar of Companies its 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
The transfer agent and registrar for our ordinary shares is Wells Fargo
Minnesota N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our ordinary shares in the public market,
or the possibility of these sales occurring, could adversely affect prevailing
market prices for our ordinary shares or our future ability to raise capital
through an offering of equity securities. As of June 30, 2000 we had 20,198,028
ordinary shares outstanding (assuming the issuance of 415,802 ordinary shares
upon the assumed net exercise at an assumed share price of $20.19 per share of
the in-the-money warrant to purchase 1,136,000 ordinary shares issued to Go2Net
at an exercise price of $12.80 per share and assuming the issuance of 104,246
ordinary shares issuable upon exercise of options granted to executive officers
and directors within 60 days of June 30, 2000 at a weighted average exercise
price of $12.05 per share.). The 3,450,000 ordinary shares sold in our initial
public offering and the 1,344,086 ordinary shares and the warrant exercisable
for 1,136,000 ordinary shares of Go2Net and Vulcan Ventures, as well as the
707,965 ordinary shares of Microsoft, are freely tradable in the public market
without restriction under the Securities Act, unless the shares are held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act.
The remaining ordinary shares outstanding upon completion of this offering will
be "restricted securities" as that term is defined under Rule 144. We issued and
sold these restricted securities in private transactions in reliance on
exemptions from registration under the Securities Act. Restricted securities may
be sold in the public market only if they are registered or if they qualify for
an exemption from registration under Rule 144 or Rule 701 under the Securities
Act, as summarized below.
27
<PAGE>
Shares Subject to Restrictions
In addition to the restrictions imposed by the securities laws, 863,780
restricted shares were issued to certain Commtouch employees under agreements
which give Commtouch Inc. a repurchase option on any unvested shares. The
repurchase option lapses ratably over time. As of June 30, 2000, approximately
347,380 ordinary shares are subject to repurchase.
Shares Subject to Restriction under Rule 144
Most of the restricted shares are subject to certain volume and other resale
restrictions pursuant to Rule 144 because the holders are affiliates of
Commtouch. In general, under Rule 144, an affiliate of Commtouch, or a person
(including a group of related persons whose shares must be aggregated under the
Rule) who has beneficially owned restricted shares for at least one year, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of
o 1% of the then outstanding ordinary shares (approximately
201,980 shares immediately following completion of the
offering, assuming net exercise of the Go2Net warrant upon the
assumptions noted above), or
o the average weekly trading volume during the four calendar
weeks preceding the date on which notice of the sale is filed
with the Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about
Commtouch. A person who was not an affiliate of Commtouch for 90 days before the
sale and who has beneficially owned the shares for at least two years may sell
under Rule 144(k) without regard to the above limitations.
Registration Rights
Some of our shareholders have contractual rights which require us to register
their shares with the Commission. Pursuant to the registration rights of Go2Net,
Vulcan Ventures and Microsoft, the Company filed a registration statement which
became effective on January 7, 2000. In addition, the holders of an additional
approximately 4,516,040 ordinary shares have registration rights under certain
circumstances.
Shares Under Employee Benefit Plans
On January 20, 2000, we filed a Form S-8 registration statement under the
Securities Act to register 5,400,000 ordinary shares issuable in connection with
option exercises and shares reserved for issuance under all stock plans and
agreements as well as 150,000 ordinary shares under the Company's Employee Stock
Purchase Plan which the Company may issue to employees from time to time. The
Company also may issue employee and director stock options from time to time.
Such options are subject to vesting periods after which the shares may be
28
<PAGE>
resold by the holders, subject to Rule 144 limitations if the holder is an
affiliate. Of 3,307,491 options issued, 230,197 option shares were vested and
unexercised as of June 30, 2000 and 1,189,372 options had been exercised. The
Company will file another Form S-8 registration statement to register an
additional 250,000 of our ordinary shares, reserved for issuance under the
Company's director stock option plan, as approved by our shareholders on August
10, 2000.
PLAN OF DISTRIBUTION
We may sell ordinary shares through underwriters, dealers or agents, directly to
one or more purchasers, or by means of both of these methods. We may distribute
ordinary shares from time to time in one or more transactions at a fixed price
or prices (which may be changed from time to time), at market prices prevailing
at the time of sale, at prices related to these prevailing market prices, or at
negotiated prices.
Regardless of the method we use to sell our ordinary shares, we will provide a
prospectus or prospectus supplement pursuant to Rule 424(b) under the Securities
Act of 1933 (the "Securities Act") that will disclose:
o the identity of any underwriters, dealers, agents or investors
who purchase ordinary shares, as required;
o the number of shares sold, the public offering price and
consideration paid, and the proceeds we will receive from the
sale;
o the amount of any compensation, discounts or commissions to be
received by underwriters, dealers or agents;
o the terms of any idemnification provisions, including
indemnification from liabilities under the federal securities
laws; and
o any other material terms of the distribution of the ordinary
shares.
Use of Underwriters and Agents
Only underwriters named in a prospectus or prospectus supplement, if any, are
underwriters of the ordinary shares offered with that prospectus or prospectus
supplement. If underwriters are used in the sale, they will acquire the ordinary
shares for their own account and may resell the ordinary shares from time to
time in one or more transactions at a fixed public offering price or at varying
prices determined at the time of sale. We may offer the ordinary shares to the
public through underwriting syndicates represented by managing underwriters or
by underwriters without a syndicate. Subject to certain conditions, the
underwriters will be obligated to purchase all the ordinary shares offered by
the prospectus supplement in which they are named, if any. Any public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may change from time to time.
29
<PAGE>
We may sell the ordinary shares through agents we designate from time to time.
We will name any agent involved in the offering and sale of ordinary shares and
in the prospectus supplement we will describe any commissions we will pay the
agent. Unless the prospectus supplement states otherwise, our agent will act on
a best-efforts basis for the period of appointment.
We may authorize agents or underwriters to solicit offers by certain types of
institutional investors to purchase the ordinary shares from us pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. We will list the public offering price for any such shares
and describe the conditions to these contracts and the commissions we must pay
for solicitation of these contracts in a prospectus supplement.
In connection with the sale of the ordinary shares offered by this prospectus,
underwriters, dealers or agents may receive compensation from us or from
purchasers of the ordinary shares for whom they may act as agents, in the form
of discounts, concessions or commissions. Agents and underwriters may engage in
transactions with us, or perform services for us, in the ordinary course of
business.
Sales Directly to Purchasers
We may enter into agreement directly with one or more purchasers. Such
agreements may provide for the sale of our ordinary shares at a fixed price,
based on the market price of the ordinary shares or otherwise. Alternatively,
such agreement may provide for the sale of ordinary shares over a period of time
by means of draw downs at our election which the purchaser would be obligated to
accept under specified conditions. Under this form of agreement, we may sell
ordinary shares at a per share purchase price which is discounted from the
market price. Such agreement may also provide for sales of ordinary shares based
on combinations of or variations from these methods.
Deemed Underwriters
The underwriters, dealers, agents or purchasers that participate in the
distribution of the ordinary shares may be deemed to be underwriters under the
Securities Act. Broker-dealers or other persons acting on behalf of parties that
participate in the distribution of the ordinary shares may also be deemed to be
underwriters. Any discounts or commissions received by them and any profit on
the resale of the ordinary shares received by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Anyone deemed
to be an underwriter under the Securities Act may be subject to statutory
liabilities, including Sections 11, 12 and 17 of the Securities Act and Rule
10b-5 under the Securities Exchange Act of 1934 (the "Exchange Act").
Underwriters or purchasers that would be deemed underwriters under the
Securities Act, and their pledgees, donees, transferees and other subsequent
owners, may offer the ordinary shares at various times in the over-the-counter
market or in privately negotiated transactions, at a fixed price or prices
(which may be changed from time to time), prevailing market prices at the time
of sale, at prices related to those prevailing market prices, or at negotiated
prices. These sales may be made according to one or more of the following
methods:
30
<PAGE>
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o block trades in which the broker or dealer so engaged will
attempt to sell the ordinary shares as agent but may position
and resell a portion of the block as principal in order to
facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the
broker or dealer for its account as allowed under this
prospectus, including resale to another broker or dealer;
o exchange distributions under the rules of the exchange;
o negotiated transactions between sellers and purchasers without
a broker-dealer; and
o by writing options.
These underwriters or purchasers may also sell the ordinary shares under Rule
144, instead of under this prospectus, if Rule 144 is available for those sales.
Underwriters and purchasers that are deemed underwriters under the Securities
Act may engage in transactions that stabilize, maintain or otherwise affect the
price of the ordinary shares, including the entry of stabilizing bids or
syndicate covering transactions or the imposition of penalty bids. Such
purchasers will be subject to the applicable provisions of the Securities Act
and Exchange Act and the rules and regulations thereunder, including Rule 10b-5
and Regulation M. Regulation M may restrict the ability of any person engaged in
the distribution of the ordinary shares to engage in market-making activities
with respect to the ordinary shares. In addition, the anti-manipulation rules
under the Exchange Act may apply to sales of the ordinary shares in the market.
All of the foregoing may affect the marketability of the ordinary shares and the
ability of any person to engage in market-making activities with respect to the
ordinary shares.
Expenses Associated with Registration
We are paying substantially all of the expenses of registering the ordinary
shares under the Securities Act and of compliance with blue sky laws, including
registration and filing fees, printing and duplication expenses, administrative
expenses, Israeli Stamp duty and our legal and accounting fees. We estimate
these expenses to be approximately $1,034,507.
Indemnification and Contribution
We may provide agents, underwriters or purchasers with indemnification against
civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents, underwriters or
purchasers may make with respect to such liabilities.
31
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to United States law are being passed upon
for Commtouch by McCutchen, Doyle, Brown & Enersen, LLP, San Francisco,
California. The validity of the ordinary shares offered hereby is being passed
upon for Commtouch by Naschitz, Brandes & Co., Tel-Aviv, Israel. The partners of
Naschitz, Brandes & Co. and McCutchen, Doyle, Brown & Enersen, LLP beneficially
own, in the aggregate, less than 1% of the outstanding shares of the Company.
EXPERTS
Kost, Forer & Gabbay, a member of Ernst & Young International, independent
auditors, have audited our consolidated financial statements included in our
Annual report on Form 20-F for the year ended December 31, 1999, as set forth in
their report, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. Our financial statements are
incorporated by reference in reliance on Kost, Forer and Gabbay's report, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-3 with the SEC for the shares
we are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. We are required to file annual and
special reports and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060. Information contained on the
Commtouch websites does not constitute part of this prospectus.
We are subject to certain of the informational requirements of the Exchange Act.
We, as a "foreign private issuer," are exempt from the rules under the Exchange
Act prescribing certain disclosure and procedural requirements for proxy
solicitations and our officers, directors and
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<PAGE>
principal shareholders are exempt from the reporting and "short-swing" profit
recovery provisions contained in Section 16 of the Exchange Act, with respect to
their purchases and sales of ordinary shares. In addition, we are not required
to file quarterly reports or to file annual and current reports and financial
statements with the Securities and Exchange Commission as frequently or as
promptly as U.S. companies whose securities are registered under the Exchange
Act. However, we intend to file with the Securities and Exchange Commission,
within 180 days after the end of each fiscal year, an annual report on Form 20-F
containing financial statements that will be examined and reported on, with an
opinion expressed by an independent accounting firm, as well as quarterly
reports on Form 6-K containing unaudited financial information for the first
three quarters of each fiscal year, within 60 days after the end of each such
quarter.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed by us with the Commission. Information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by this prospectus or by information we file with the
Commission in the future.
The following documents are incorporated by reference:
(a) Our Annual Report on Form 20-F for the fiscal year ended
December 31, 1999 as amended by Amendment No. 1;
(b) Our reports on Form 6-K for the quarters ended March 31 and
June 30, 2000 as amended by Amendment No. 1 (as to June 30
report) and our report on Form 6-K for the month of November,
2000; and
(c) The description of our ordinary shares contained in the
registration statement under the Exchange Act on Form 8-A as
filed with the Commission on June 25, 1999, and any subsequent
amendment or report filed for the purpose of updating this
description.
In addition, all subsequent annual reports filed on Form 20-F prior to the
termination of this offering are incorporated by reference into this prospectus.
Also, we may incorporate by reference our future reports on Form 6-K by stating
in those Forms that they are being incorporated by reference into this
prospectus.
We will provide without charge to any person (including any beneficial owner) to
whom this prospectus has been delivered, upon oral or written request, a copy of
any document incorporated by reference in this prospectus but not delivered with
the prospectus (except for exhibits to those documents unless a document states
that one of its exhibits is incorporated into the document itself). Such
requests should be directed to James E. Collins, Chief Financial Officer, c/o
Commtouch Inc., 2029 Stierlin Court, Mountain View, California 94043-4655. Our
corporate website address is http://www.commtouch.com. The information on our
website is not intended to be a part of this prospectus.
33
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated in Israel, and most of our directors and many of the
executive officers and the Israeli experts named herein are not residents of the
United States and substantially all 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. Commtouch Inc. is the U.S. agent
authorized to receive service of process in any action against us 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 the
Securities Act or the Exchange Act 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:
o the judgment was rendered by a court which was, according to
the laws of the state of the court, competent to render the
judgment,
o the judgment is no longer appealable,
o 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
o 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 (i) the judgment was obtained by fraud, (ii) there was no due process, (iii)
the judgment was rendered by a court not competent to render it according to the
laws of private international law in Israel, (iv) 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 (v) 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. Judgments rendered or enforced by Israeli
courts will generally be payable in Israeli currency. Judgment debtors bear the
risk associated with converting their awards into foreign currency, including
the risk of unfavorable exchange rates.
34
<PAGE>
4,000,000 Ordinary Shares
COMMTOUCH SOFTWARE LTD.
---------------------------
PROSPECTUS
---------------------------
__________________, 2000
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by the Company (the
"Registrant") in connection with the offering of the securities being registered
other than the underwriting discounts and commissions. All of the amounts are
estimates except for the SEC registration fee and the Nasdaq National Market
filing fee.
SEC registration fee.............................. $ 20,757
Nasdaq National Market filing fee................. 17,500
Blue Sky fees and expenses........................ 10,000
Printing and engraving expenses................... 50,000
Israeli Stamp Duty................................ 786,250
Legal fees and expenses........................... 50,000
Accounting fees and expenses...................... 50,000
Transfer agent and registrar fees and expenses.... 10,000
Miscellaneous expenses............................ 40,000
----------
Total........................................... $1,034,507
==========
Item 15. Indemnification of Directors and Officers.
Israeli law permits a company to insure an Office Holder in respect of
liabilities incurred by him or her as a result of the breach of his or her duty
of care to the company or to another person, or as a result of the breach of his
or her fiduciary duty to the company, to the extent that he or 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 or she committed in connection with his
or her serving as an Office Holder. Moreover, a company can indemnify an Office
Holder for (a) monetary liability imposed upon him or her in favor of other
persons pursuant to a court judgment, including a compromise judgment or an
arbitrator's decision approved by a court and (b) reasonable litigation
expenses, including attorneys' fees, actually incurred by him or her or imposed
upon him or her by a court, in an action, suit or proceeding brought against him
or her by or on behalf of the company or other persons, or in connection with a
criminal action which does not require criminal intent in which he or she was
convicted, in each case in connection with his or 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 provided such insurance of indemnification
is approved by our Audit Committee. Pursuant to these provisions, we have in
effect insurance policies in the amount of US $25 million covering our directors
and officers.
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<PAGE>
Certain members of our management team are officers of our subsidiary, Commtouch
Inc., a California Corporation, or reside in California. The Articles of
Incorporation of Commtouch Inc. provide that the liability of the directors of
the corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law and that the corporation is authorized to
provide for the indemnification of agents of the corporation, as defined in
Section 317 of the California General Corporation Law, in excess of that
expressly permitted by Section 317 for breach of duty to the corporation and its
shareholders to the fullest extent permissible under California law.
With respect to all proceedings other than shareholder derivative actions,
Section 317 permits a California corporation to indemnify any of its directors,
officers or other agents only if such person acted in good faith and in a manner
such person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. In the case of derivative actions, a
California corporation may indemnify any of its directors, officers or agents
only if such person acted in good faith and in a manner such person believed to
be in the best interests of the corporation and its shareholders. Furthermore,
in derivative actions, no indemnification is permitted (i) with respect to any
matter with respect to which the person to be indemnified has been held liable
to the corporation, unless such indemnification is approved by the court; (ii)
of amounts paid in settling or otherwise disposing of a pending action without
court approval; or (iii) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval. To the extent
that a director, officer or agent of a corporation has been successful on the
merits in defense of any proceeding for which indemnification is permitted by
Section 317, a corporation is obligated by Section 317 to indemnify such person
against expenses actually and reasonably incurred in connection with the
proceeding.
Item 16. Exhibits.
The exhibits to this registration statement are incorporated by reference as
described in Exhibit Index filed herewith.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which,
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<PAGE>
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) to include any material information with respect to the Plan of
Distribution not previously disclosed in the Registration Statement or any other
material change to such information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Securities Act need not be furnished, provided that the Registrant includes in
the prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least as current as
the date of those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required by Section
10(a)(3) of the Securities Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the Form F-3.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
(c) 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
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<PAGE>
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 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Mountain
View, state of California, on November 2, 2000.
COMMTOUCH SOFTWARE LTD.
By: /S/ JAMES E. COLLINS
----------------------------
James E. Collins
Chief Financial Officer
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/S/ GIDEON MANTEL Chief Executive Officer and Director November 2, 2000
----------------------------------- (Principal Executive Officer)
Gideon Mantel
/s/ JAMES E. COLLINS Chief Financial Officer November 2, 2000
----------------------------------- (Principal Financial Officer)
James E. Collins
/s/ DEVYANI PATEL Controller November 2, 2000
-----------------------------------
Devyani Patel
/s/ ALLAN C. BARKAT Director November 2, 2000
-----------------------------------
Allan C. Barkat
/s/ CAROLYN CHIN Director November 2, 2000
-----------------------------------
Carolyn Chin
/s/ YAIR SAFRAI Director November 2, 2000
-----------------------------------
Yair Safrai
/s/ THOMAS CALANDRA Director November 2, 2000
-----------------------------------
Thomas Calandra
/s/ RICHARD SORKIN Director November 2, 2000
-----------------------------------
Richard Sorkin
/s/ JAMES E. COLLINS Attorney-in-fact and November 2, 2000
----------------------------------- Authorized U.S. Representative
James E. Collins
</TABLE>
40
<PAGE>
Exhibit Index
Exhibit
Number Description of Document
------- -----------------------------------------------------------------
3.1 Memorandum of Association of the Registrant.(1)
3.2 Articles of Association of the Registrant.(6)
4.1 Specimen Certificate of Ordinary Shares.(1)
4.2 Amended and Restated Registration Rights Agreement dated as of
April 19, 1999.(1)
4.2.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated as of December 29, 1999.(4)
4.2.2 Amendment No. 2 to Amended and Restated Registration Rights
Agreement dated as of March 10, 2000.(5)
4.3 Form of Tag-Along Rights (Right of First Refusal and Co-Sale)
Agreement dated as of December 23, 1998.(1)
4.4 Form of Drag-Along Letter dated as of April 15, 1999.(1)
5.1 Opinion of Naschitz, Brandes & Co., Israeli counsel to the
Registrant, as to certain legal matters with respect to the
legality of the shares.
10.1 Registrant's 1996 CSI Stock Option Plan and forms of agreements
thereunder.(1)
10.2 Registrant's form of Stock Option Agreement for Israeli
Employees.(1)
10.3 Registrant's 1999 Stock Option Plan and form of agreement
thereunder.(1)
10.4 Commtouch Software Ltd. 1999 Nonemployee Directors Stock Option
Plan.(1)
10.4.1 Amendment to Commtouch Software Ltd. 1999 Nonemployee Directors
Stock Option Plan.(7)
10.5 Commtouch Software Ltd. 1999 Employee Stock Purchase Plan and
forms thereunder.(1)
10.6 Sublease between ASCII of America, Inc. and Commtouch for
Commtouch's offices in Santa Clara, California, dated December
16, 1998.(1)
10.7 Lease between DeAnza Building and Commtouch for Commtouch's
offices in Sunnyvale, California, dated February 5, 1996, as
amended.(1)
10.8 Form of Letter Agreement between the Registrant and U.S. Bancorp
Piper Jaffray.(2)
10.9 Form of Customized Web-based Email Service Agreement by and
between Go2Net, Inc. and the Registrant.(3)
10.9.1 Form of Share Warrant for Go2Net, Inc. to purchase ordinary
shares of the Registrant.(3)
10.9.2 Form of Share Warrant for Microsoft Corporation to purchase
ordinary shares of the Registrant dated October 26, 1999.(4)
10.9.3 Amendment dated December 29, 1999 to Form of Share Warrant for
Microsoft Corporation to purchase ordinary shares of the
Registrant.(4)
10.9.4 Lockup Agreement between the Registrant and Microsoft Corporation
dated December 29, 1999.(4)
10.10 Form of Share Purchase Agreement by and among the Registrant,
Go2Net, Inc. and Vulcan Ventures Incorporated.(3)
10.10.1 Form of Registration Rights Agreement by and among the
Registrant, Go2Net, Inc. and Vulcan Ventures Incorporated.(3)
10.10.2 Form of Letter Agreement between the Registrant and Selling
Securityholders extending deadline for SEC registration.(4)
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Kost, Forer & Gabbay, independent auditors.*
23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit 5.1)
23.3 Consent of McCutchen, Doyle, Brown & Enersen, LLP.
24.1 Power of Attorney of directors and certain officers of the
Registrant.
99.1 Press Release of the Registrant, dated July 7, 1999.(2)
99.2 Memorandum of Understanding between the Registrant, Go2Net, Inc.
and Vulcan Ventures Incorporated, dated July 7, 1999.(2)
------------
(1) Incorporated by reference to similarly numbered exhibit in Amendment
No. 1 to Registration Statement on Form F-1 of Commtouch Software
Ltd., File No. 333-78531.
(2) Incorporated by reference to similarly numbered exhibit in Amendment
No. 4 to Registration Statement on Form F-1 of Commtouch Software
Ltd., File No. 333-78531.
(3) Incorporated by reference to similarly numbered exhibit in Amendment
No. 5 to Registration Statement on Form F-1 of Commtouch Software
Ltd., File No. 333-78531.
(4) Incorporated by reference to similarly numbered exhibit in Amendment
No. 1 to Registration Statement on Form F-1 of Commtouch Software
Ltd., File No. 333-89773.
(5) Incorporated by reference to similarly numbered exhibit in Amendment
No. 2 to Registration Statement on Form F-1 of Commtouch Software
Ltd., File No. 333-89773, filed March 28, 2000.
(6) Incorporated by reference to Exhibit 2 to Report on Form 6-K for the
month of August 2000.
(7) Incorporated by reference to Exhibit 3 to Report on Form 6-K for the
month of August 2000.
* Filed herewith. All other exhibits previously filed or incorporated by
reference.
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