As filed with the Securities and Exchange Commission on July 27, 2000
Registration No. 333-89773
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 1
ON FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
COMMTOUCH SOFTWARE LTD.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Israel 7389 Not Applicable
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6 Hazoran Street
Poleg Industrial Park, P.O. Box 8511
Netanya 42504, Israel
011-972-9-863-6888
(Address and telephone number of Registrant's principal executive offices)
c/o Commtouch Inc.
James E. Collins, Chief Financial Officer
3945 Freedom Circle, Suite 400
Santa Clara, California 95054
(408) 653-4330
(Name, address and telephone number of agent for service) (See explanatory
note)
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Copies to:
<S> <C> <C> <C>
Lior O. Nuchi Aaron M. Lampert Keith Dolliver Francis J. Feeney, Jr.
Venrice R. Palmer Noga Devesceri Spira Microsoft Corporation David M. Barbash
Irene Song Sharkansky Naschitz, Brandes & Co. One Microsoft Way Hutchins, Wheeler & Dittmar
McCutchen, Doyle, 5 Tuval Street Redmond, WA 98052 A Professional Corporation
Brown & Enersen, LLP Tel Aviv 67897 Israel 101 Federal Street
3150 Porter Drive Boston, Massachusetts 02110
Palo Alto, CA 94304
</TABLE>
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. [ ]
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. [ ]
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Explanatory Note
After July 31, 2000, the address of the agent for service will be:
c/o Commtouch Inc.
James E. Collins, Chief Financial Officer
2029 Stierlin Court
Mountain View, California 94043-4655
<PAGE>
Commtouch Software Ltd.
2,052,051 Ordinary Shares
Warrant to Purchase 1,136,000 Ordinary Shares
1,136,000 Ordinary Shares Issuable Upon Exercise of Warrant
[GRAPHIC OMITTED]
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As we described further below under "Plan of Distribution," Go2Net, Inc.,
Vulcan Ventures Incorporated and Microsoft Corporation, the Selling
Securityholders identified in this prospectus, are selling up to 2,052,051 of
our ordinary shares. Go2Net is also selling a warrant and 1,136,000 ordinary
shares which may be acquired upon exercise of the warrant. These securities may
be offered from time to time by the Selling Securityholders through public or
private transactions, on or off the Nasdaq National Market, at prevailing market
prices or at privately negotiated prices. The Selling Securityholders will
receive all of the proceeds from this offering and will pay all underwriting
discounts and selling commissions, if any, applicable to the sale of the
securities. We will pay the expenses of registration of this offering. The
Company has agreed to indemnify the Selling Securityholders against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
The ordinary shares and warrant are being offered by the Selling
Securityholders subject to prior sale and subject to their right to reject
offers in whole or in part and to certain other conditions.
Our ordinary shares are currently traded on the Nasdaq National Market under
the symbol "CTCH." On July 24, 2000, the last reported sales price of an
ordinary share on the Nasdaq National Market was $24.44 per share.
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act and any profits realized by them may be deemed to
be underwriting commissions. Any broker-dealers that participate in the
distribution of ordinary shares or the warrant also may be deemed to be
"underwriters," as defined in the Securities Act, and any commissions or
discounts paid to them, or any profits realized by them upon the resale of any
securities purchased by them as principals, may be deemed to be underwriting
commissions or discounts under the Securities Act. The sale of the ordinary
shares and the warrant is subject to the prospectus delivery requirements of the
Securities Act.
The ordinary shares and the warrant offered hereby have been registered
pursuant to registration rights granted to the Selling Securityholders by the
Company.
Our initial public offering occurred on July 16, 1999.
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This investment involves risk. See "Risk Factors" beginning on page 3.
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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
<PAGE>
TABLE OF CONTENTS
Page
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Summary .................................................................... 1
Risk Factors ............................................................... 3
Use of Proceeds ............................................................ 13
Selling Securityholders .................................................... 14
Description of Share Capital ............................................... 15
Shares Eligible for Future Sale ............................................ 21
Plan of Distribution ....................................................... 22
Legal Matters .............................................................. 23
Experts .................................................................... 23
Where You Can Find More Information ........................................ 23
Information Incorporated by Reference ...................................... 24
Enforceability of Civil Liabilities ........................................ 25
-------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with different information. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any state where the offer or sale is not permitted. The
information in this prospectus is complete and accurate as of the date on the
front cover, but the information may have changed since that date.
i
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SUMMARY
This summary provides an overview of selected information and does not contain
all the information you should consider. Therefore, you should also read the
more detailed information set out in this prospectus, the financial statements
and the other information incorporated by reference into this prospectus.
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. and Commtouch (UK) Ltd. 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 368,270 ordinary shares upon the assumed
net exercise at an assumed share price of $18.94 per 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.
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 December 31, 1999, we had over 250 global customers. Through our
customers' sites we serve approximately 8.4 million active emailboxes. We also
serve over 1.0 million active emailboxes to small businesses and websites
through our ZapZone Network. Our comprehensive Web-based email and messaging
solutions offer the following benefits:
* 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.
* 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.
* 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.
* 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.
* Extensive language capabilities. Our email services are available in 18
languages. Additionally, we can support more than one language on any of our
customers' websites.
* Increased website usage. We believe that our services increase the frequency
and duration of users' visits to our customers' websites.
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1
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* 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.
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 3945 Freedom Circle, Suite #400, Santa Clara, California
95054, where our telephone number is (408) 653-4330. Our website addresses are
www.commtouch.com and www.zzn.com. The information contained on our websites is
not a part of this prospectus.
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The Offering
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Ordinary shares offered ................................ 2,052,051 shares
Warrant to purchase shares ............................. 1,136,000 shares
Shares available on exercise of warrant ................ 1,136,000
Ordinary shares outstanding after the offering ......... 16,415,069 shares
Use of proceeds ........................................ We will not receive any of the proceeds
from the sale of the shares or the warrant
by the Selling Securityholders in this
offering.
NASDAQ National Market Symbol .......................... CTCH
</TABLE>
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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 May 31, 2000, and:
* assumes the issuance of 368,270 ordinary shares upon the assumed net
exercise at an assumed share price of $18.94 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;
* assumes the issuance of 397,580 ordinary shares issuable upon exercise of
options granted to executive officers and directors within 60 days of May
31, 2000 at a weighted average exercise price of $24.20 per share.
* with respect to financial information, is reported in U.S. dollars; and
does not include:
* 2,042,261 ordinary shares issuable to employees and consultants upon
exercise of outstanding options under our stock option plans and stock
option agreements as of May 31, 2000 at a weighted average exercise price
of $22.57 per share; and
* 2,022,684 ordinary shares available for future grant or issuance under our
stock option and stock purchase plans as of May 31, 2000.
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2
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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 December 31, 1999, we had an accumulated
deficit of approximately $31.5 million. We have not achieved profitability in
any period, and we expect to continue to incur net losses for the foreseeable
future.
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.
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:
* the size, timing and fulfillment of orders for our email services;
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* the receipt or payment of irregular or nonrecurring revenues or expenses;
* our mix of service offerings, including our ability to successfully
implement new services;
* pricing of our services; and
* 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.
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.
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
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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.
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.
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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.
One customer, Excite, accounted for 54% of our revenues in 1998. Revenues from
MyPoints, a permission based email service company, represented 11% of our
revenues in 1999. Customers may provide us with a large number of users but pay
a relatively small minimum annual service fee.
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.
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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.
We are a relatively small competitor in the electronic messaging industry and,
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.
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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. 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).
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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.
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
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 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
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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 or the warrant will experience
immediate dilution to the extent the purchase price of the shares, or the
exercise price of the warrant, 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 15% 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 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:
* 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;
* conflicts related to corporate opportunities that could be pursued by us,
on the one hand, or by Go2Net, on the other hand; or
* conflicts related to existing or new contractual relationships between us,
on the one hand, and Go2Net and its other affiliates, on the other hand.
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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 sales offices in the United States, Israel and England. 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:
* difficulties and costs of staffing and managing international operations;
* fluctuations in currency exchange rates;
* imposition of currency exchange controls;
* differing technology standards;
* export restrictions, including export controls relating to encryption
technologies;
* difficulties in collecting accounts receivable and longer collection
periods;
* unexpected changes in regulatory requirements;
* political and economic instability;
* potentially adverse tax consequences; and
* 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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<PAGE>
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.
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
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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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares or the warrant by
the Selling Securityholders in this offering.
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<PAGE>
SELLING SECURITYHOLDERS
The following table presents information provided by the Selling Securityholders
with respect to beneficial ownership of our ordinary shares as of May 31, 2000,
and as adjusted to reflect the sale of the shares offered by this prospectus, by
the Selling Securityholders.
The table includes all shares issuable within 60 days of May 31, 2000 upon the
exercise of options, warrants and other rights beneficially owned by the
indicated shareholders on that date. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and includes
voting and investment power with respect to shares. To our knowledge, except
under applicable community property laws or as otherwise indicated, the persons
named in the table have sole voting and sole investment control with respect to
all shares beneficially owned. The applicable percentage of ownership for each
shareholder is based on 16,415,069 ordinary shares outstanding as of May 31,
2000 (assuming in each case the issuance of 368,270 ordinary shares upon the
assumed net exercise at an assumed share price of $18.94 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 397,580
ordinary shares issuable upon exercise of options granted to executive officers
and directors within 60 days of May 31, 2000 at a weighted average exercise
price of $24.20 per share.) and 16,415,069 ordinary shares outstanding
immediately following the completion of this offering, together with applicable
options and/or warrants for that shareholder.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Shares Owned After Offering
----------------------- Being --------------------
Name of Beneficial Owner Number Percent Offered Number Percent
------------------------------------------ ----------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Go2Net, Inc.(1) .......................... 2,032,057 12.4 2,032,057 0 0
999 3rd Avenue, Suite 4700
Seattle, WA 98104
Vulcan Ventures, Incorporated(2) ......... 448,029 2.7 448,029 0 0
110 110th Avenue N.E., Suite 550
Bellevue, WA 98004
Microsoft Corporation(3) ................. 707,965 4.3 707,965 0 0
One Microsoft Way
Redmond, WA 98052
<FN>
------------
(1) Includes 869,057 ordinary shares held directly and 1,136,000 ordinary shares
available upon exercise of a warrant. See "RISK FACTORS" for information
regarding the transaction in which the ordinary shares were issued.
(2) Shares were purchased in a private placement.
(3) Shares were purchased on December 29, 1999 upon exercise of a warrant. See
"RISK FACTORS" for information regarding the transaction in which the
ordinary shares were issued.
</FN>
</TABLE>
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<PAGE>
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 May 31, 2000, our authorized share capital consisted of 40,000,000
ordinary shares, NIS 0.05 par value. As of May 31, 2000, there were 16,415,069
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.
Voting, Shareholder Meetings and Resolutions
Holders of ordinary shares have one vote for each ordinary share held on all
matters submitted to a vote of shareholders. Such rights may be affected by the
future grant of any special voting rights to the holders of a class of shares
with preferential rights. Any change in the registered capital of Commtouch,
including the creation of a new class of shares with rights superior or inferior
to existing classes of shares may be adopted by a "special resolution" (the
resolution of the holders of 75 percent or more of the shares participating in a
general meeting). 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-third of the voting rights of the
issued share capital. A
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<PAGE>
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 Chairman
may determine with the consent of the holders of a majority of the shares
present in person or by proxy and voting on the question of adjournment. At such
reconvened meeting any two shareholders present in person or by proxy (and not
in default under the articles) will constitute a quorum.
Most shareholder resolutions, including resolutions for the election of
directors, the declaration of dividends, the appointment of auditors or the
approval of transactions with Office Holders as required by the Companies Law,
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.
According to the Company's Articles of Association, certain corporate actions
such as making changes in the capital structure of Commtouch (such as a
reduction of capital, increase of capital or share split) and authorizing a new
class of shares or changing special rights of a class of shares must be approved
by a "special resolution" and will be deemed adopted only if approved by the
holders of not less than 75 percent of the voting power represented in person or
by proxy at the meeting and voting thereon, and in some cases 75 percent of the
voting power of the affected class of shares.
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, according to
the law in the country in which the shares are traded, including the rules and
regulations of the stock exchange on which the shares are traded, either:
* there is a limitation on acquistion of any level of control of the
company; or
* the acquisition of any level of control requires the purchaser to do so by
means of a tender offer to the public.
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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 Warrant Offered in This Prospectus
In connection with the Customized Web-based Email Service Agreement entered into
between Commtouch's U.S. subsidiary and Go2Net, Commtouch issued to Go2Net a
fully vested, non-foreitable, 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.
General
Prior to this offering, there has been no public market for the warrant and no
such market is likely to develop upon completion of the offering. The terms of
the warrant were negotiated between the Company and Go2Net. The sale price of
the warrant in this offering will be determined solely by Go2Net in negotiation
with any prospective purchaser. The terms of the warrant are not related to the
Company's asset value, earnings, book value or other such criteria of value.
Further, the terms upon which the Company will be able to obtain additional
equity capital may be adversely affected since the holder of the warrant can be
expected to exercise it at a time when the Company would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in the warrant.
Go2Net and its transferee(s) may be deemed to be "underwriters" under the
Securities Act with respect to the sale of the shares and the warrant, and any
profit realized upon the sale of the shares and warrant may deemed to be
additional underwriting compensation.
Antidilution Provisions
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 occurence of certain events.
The warrant provides that Go2Net or its permitted assigns, is entitled to
purchase up to 1,136,000 fully paid and nonassessable ordinary shares at the
price of $12.80 per share. The warrant is exercisable, in
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<PAGE>
whole or in part, at any time and from time to time on and after July 16, 1999
through July 16, 2004 upon presentation and surrender at the principal office of
the Company and payment of the exercise price.
The warrant has a net exercise feature under which the exercise price may be
paid by authorizing the Company to withhold the number of shares being exercised
whose fair market value equals the aggregate exercise price of the portion of
the warrant being exercised. The net exercise feature is available as long as
the ordinary shares remain publicly traded or in the event of a merger or
consolidation of the Company with or into an unaffiliated entity in which the
shareholders of the Company own less than 50% of the voting securities of the
survivor, or the sale, transfer or lease (except for a transfer or lease by
pledge or mortgage to bona fide lender) of all or substantially all of the
assets of the Company to an unaffiliated entity.
"Fair market value" means, (i) if the shares are listed on a national stock
exchange or the Nasdaq National Market, the average of the closing prices for
the five trading days immediately prior to the date of determination, or (ii) if
the shares are not so listed, the average of the closing bid and asked prices in
the over-the-counter market for the five trading day's immediately prior to the
date of the determination, as furnished by a national quotation service or the
principal broker making a market in the shares. In a merger or consolidation,
fair market value means the merger consideration or other value to be received
by the Company's shareholders.
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. The
holder is also required to cooperate with the Company so as to minimize adverse
Israeli tax consequences.
Both the number of shares issuable upon exercise of the warrant and the exercise
price will be ratably adjusted if any of the following events occur before the
warrant is exercised:
* the Company issues additional ordinary shares or any rights, options,
warrants or other securities exercisable for or convertible into shares at
a total consideration per share of less than the warrant exercise price
per share. Options granted to employees and others under compensatory or
stock option plans would not trigger such adjustments.
* the Company combines all of the outstanding shares into a smaller number
of shares, in which case the exercise price will be proportionately
increased and the number of shares subject to the warrant will be
proportionately decreased.
* the Company declares a dividend or other distribution payable in shares or
subdivides its shares into a greater number, in which case the exercise
price will be proportionately decreased. The number and kind of shares
available on exercise will be adjusted so that the holder will be entitled
to receive the same amount and kind of dividend or distribution had the
holder been a record holder of shares on any record date with respect to
such dividend or distribution, and on the same terms on which the dividend
or distribution was made. If the distribution involves rights, warrants,
options, or any other convertible security and the exercise or conversion
rights would expire prior to exercise of the warrant, the holder is
entitled to exercise such rights for 30 days after exercising the warrant.
* In the event of a merger, a reorganization or reclassification of the
Company's capital stock or sale of substantially all of the Company's
assets, the holder will be entitled to the same consideration which he or
she would have received if the warrant had been exercised and shares
issued prior to such event.
The Company agreed to file a registration statement with respect to the warrant
and the shares offered under this prospectus as soon as practicable and in no
event later than February 1, 2000. This registration statement is filed pursuant
to that agreement and initially became effective on January 7, 2000.
Holders of the warrant are not entitled to vote or receive dividends or be
deemed the holder of ordinary shares or have any other rights of a shareholder
of the Company until the warrant has been exercised and the shares shall have
become deliverable to the holder. Transferee(s) of the warrant also will be
subject to the same terms of the warrant as if such transferee(s) were the
original holder.
18
<PAGE>
Description of Other Warrants
Commtouch, Commtouch's U.S. subsidiary and Microsoft Corporation entered into an
Email Services Agreement dated October 26, 1999. Under this agreement,
Commtouch, Commtouch's U.S. subsidiary 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 granted 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 $20.0 million. On December 29, 1999, Microsoft exercised the
warrant and now holds 707,965 ordinary shares. We agreed to register the resale
of these shares with the Commission. The registration statement, of which this
prospectus is a part, initially became effective on January 7, 2000.
As of December 31, 1999, Commtouch had outstanding a warrant to purchase 4,860
ordinary shares issued to a consultant. This warrant was net exercised into
4,461 ordinary shares in January 2000.
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, which include certain of the Selling Shareholders, 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 were registered on
January 7, 2000 pursuant to a registration statement of which this prospectus is
a part.
19
<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 Norwest Bank
Minnesota, N.A.
20
<PAGE>
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 May 31, 2000 we had 16,415,069
ordinary shares outstanding (assuming the issuance of 368,270 ordinary shares
upon the assumed net exercise at an assumed share price of $18.94 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 397,580
ordinary shares issuable upon exercise of options granted to executive officers
and directors within 60 days of May 31, 2000 at a weighted average exercise
price of $24.20 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, all of which are offered hereby, 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.
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 May 31, 2000, approximately
358,999 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
* 1% of the then outstanding ordinary shares (approximately 164,150 shares
immediately following completion of the offering, assuming net exercise of
the Go2Net warrant upon the assumptions noted above), or
* 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 the registration statement of
which this prospectus is a part. 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
21
<PAGE>
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 resold by the holders, subject to Rule 144
limitations if the holder is an affiliate. Of 3,227,316 options issued, 226,951
option shares were vested and unexercised as of May 31, 2000 and 1,185,055
options had been exercised.
PLAN OF DISTRIBUTION
The Selling Securityholders may sell, directly or through brokers, the ordinary
shares and warrant in one or more long or short transactions at fixed prices, at
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices.
The Selling Securityholders may offer their shares and the warrant in one or
more of the following transactions:
* On any national securities exchange or quotation service on which the ordinary
shares may be listed or quoted at the time of sale, including the Nasdaq
National Market;
* In the over-the-counter market;
* In private transactions;
* Through options or other derivative instruments;
* By pledge to secure debts or other obligations;
* Through block transactions;
* Any other legally available means; or
* A combination of any of the above transactions.
In connection with such sales, the Selling Securityholders and any participating
broker may be deemed to be "underwriters" of the shares within the meaning of
the Securities Act, although the offering of these securities may not be
underwritten by a broker-dealer firm. Such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders. Any such commissions and profits realized on
any resale of the shares and warrant might be deemed to be underwriting
discounts and commissions under the Securities Act. Sales in the market may be
made to broker-dealers making a market in the ordinary shares or other
broker-dealers, and such broker-dealers, upon their resale of such securities,
may be deemed to be underwriters in this offering.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the ordinary shares and
warrant, other than any discounts or commissions payable with respect to sales
of such securities. We estimate that our expenses in connection with this
offering will be approximately $500,000.
From time to time this prospectus may be supplemented or amended as required by
the Securities Act. During any time when a supplement or amendment is required,
the Selling Securityholders are required to stop making sales until the
prospectus has been supplemented or amended. Further, the Company is required to
maintain the effectiveness of the Registration Statement during the period
ending on (i) the date the warrant is fully exercised and all the ordinary
shares offered by this prospectus, including the shares available on exercise of
the warrant, are sold or (ii) two years from the date of our initial public
offering, whichever occurs first.
We will make copies of this prospectus available to the Selling Securityholders
and have informed the Selling Securityholders of the need for delivery of a copy
of this prospectus to each purchaser of the ordinary shares or the warrant prior
to or at the time of such sale.
Pursuant to the terms under which the ordinary shares and the warrant were
issued to the Selling Securityholders, the Company has agreed to indemnify the
Selling Securityholders and any
22
<PAGE>
underwriter against such liabilities as they may incur as a result of any untrue
statement of a material fact in the Registration Statement of which this
prospectus is a part, or any omission herein or therein to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading. Such indemnification
includes liabilities under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), state securities laws and the rules
thereunder, but excludes liabilities for statements or omissions that were based
on information provided by the Selling Securityholders, as to which they have
agreed to indemnify the Company and any underwriter.
Each Selling Securityholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Securityholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distribution, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
LEGAL MATTERS
Certain legal matters with respect to United States law are being passed upon
for Commtouch by McCutchen, Doyle, Brown & Enersen, LLP, Palo Alto, 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-1 (as amended by an amendment
filed on Form F-3) with the SEC for the shares and warrant 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
23
<PAGE>
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 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;
(b) Our report on Form 6-K for the quarter ended March 31, 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., 3945 Freedom Circle, Suite 400, Santa Clara,
California 95054. Our telephone number at this location is (408) 653-4330.
After July 31, 2000 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.
24
<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:
* the judgment was rendered by a court which was, according to the laws of
the state of the court, competent to render the judgment,
* the judgment is no longer appealable,
* the obligation imposed by the judgment is enforceable according to the
rules relating to the enforceability of judgments in Israel and the
substance of the judgment is not contrary to public policy, and
* the judgment is executory in the state in which it was given.
Even if the above conditions are satisfied, an Israeli court will not enforce a
foreign judgment if it was given in a state whose laws do not provide for the
enforcement of judgments of Israeli courts (subject to exceptional cases) or if
its enforcement is likely to prejudice the sovereignty or security of the State
of Israel. An Israeli court also will not declare a foreign judgment enforceable
if (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.
25
<PAGE>
2,052,051 Ordinary Shares
Warrant to Purchase 1,136,000 Ordinary Shares
1,136,000 Ordinary Shares Issuable Upon Exercise of Warrant
COMMTOUCH SOFTWARE LTD.
[GRAPHIC OMITTED]
-----------------------
PROSPECTUS
-----------------------
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. 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. All of the amounts are estimates except for the SEC registration
fee and the Nasdaq National Market filing fee.
SEC registration fee ............................... $ 21,695
Nasdaq National Market filing fee .................. 17,500
Blue Sky fees and expenses ......................... 10,000
Printing and engraving expenses .................... 50,000
Israeli Stamp Duty ................................. 145,408*
Legal fees and expenses ............................ 100,000
Accounting fees and expenses ....................... 100,000
Transfer agent and registrar fees and expenses ..... 10,000
Miscellaneous expenses ............................. 45,397
----------
Total ........................................... $ 500,000
==========
------------
* Payable only upon exercise of the warrant.
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. The Registration Rights Agreement which we entered into with
Go2Net and Vulcan (filed as an exhibit to this registration statement), contains
certain provisions relating to indemnification of our directors and officers.
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
II-1
<PAGE>
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.
Pursuant to the terms under which the ordinary shares and the warrant were
issued to the Selling Securityholders, the Company has agreed to indemnify the
Selling Securityholders and any underwriter against such liabilities as they may
incur as a result of any untrue statement of a material fact in the Registration
Statement, or any omission therein to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading. Such indemnification includes liabilities under the
Securities Act, the Exchange Act, state securities laws and the rules
thereunder, but excludes liabilities for statements or omissions that were based
on information provided by Go2Net or Vulcan Ventures, as to which the Selling
Securityholders have agreed to indemnify the Company and any underwriter. The
Company has also agreed to indemnify Go2Net and Vulcan Ventures against
withholding tax, tax on capital gains, dividends or other income, any transfer
tax, stamp duty or similar tax, or any other form of tax, assessment or
imposition imposed by the State of Israel with respect to their acquisition and
subsequent sale of the ordinary shares and the warrant as well as certain other
matters, including the requirement to pay additional amounts to reimburse Go2Net
and Vulcan Ventures for any U.S. taxes on the amount of such indemnity.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
---------- -------------------------------------------------------------------------------------------
<S> <C>
3.1 Memorandum of Association of the Registrant.(1)
3.2 Articles of Association of the Registrant.(1)
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)
10.5 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)
II-2
<PAGE>
Exhibit
Number Description of Document
------------ ---------------------------------------------------------------------------------------------
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)
<FN>
------------
(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) Filed with Pre-Effective Amendment No. 1 to Registration Statement.
(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.
* Filed herewith, remaining exhibits previously filed.
</FN>
</TABLE>
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, 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.
II-3
<PAGE>
(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 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.
II-4
<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 Santa
Clara, state of California, on July 26, 2000.
COMMTOUCH SOFTWARE LTD.
By: /s/ JAMES E. COLLINS*
-----------------------------
James E. Collins
Chief Financial Officer
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.
<TABLE>
<CAPTION>
Name Title Date
----------------------------- --------------------------------------- --------------
<S> <C> <C>
/s/ GIDEON MANTEL* Chief Executive Officer and Director July 26, 2000
--------------------------- (Principal Executive Officer)
Gideon Mantel
/s/ JAMES E. COLLINS* Chief Financial Officer (Principal July 26, 2000
--------------------------- Financial Officer)
James E. Collins
/s/ DEVYANI PATEL* Controller July 26, 2000
---------------------------
Devyani Patel
/s/ AMIR LEV* Director July 26, 2000
---------------------------
Amir Lev
/s/ ALLAN C. BARKAT* Director July 26, 2000
---------------------------
Allan C. Barkat
/s/ YAIR SAFRAI* Director July 26, 2000
---------------------------
Yair Safrai
/s/ THOMAS CAMP* Director July 26, 2000
---------------------------
Thomas Camp
/s/ RICHARD SORKIN* Director July 26, 2000
---------------------------
Richard Sorkin
/s/ JAMES E. COLLINS *Individually and as Attorney-in-fact July 26, 2000
--------------------------- and Authorized U.S. Representative
James E. Collins
II-5
<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.(1)
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)
10.5 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.*
<PAGE>
Exhibit
Number Description of Document
-------- -------------------------------------------------------------------------------------
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)
</TABLE>
------------
(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) Filed with Pre-Effective Amendment No. 1 to Registration Statement.
(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.
* Filed herewith, remaining exhibits previously filed.
