FORM 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITES EXCHANGE ACT OF 1934
For the month of August 2000
(containing quarterly information for the quarter ended June 30, 2000)
Commtouch Software Ltd.
(Translation of registrant's name into English)
6 Hazoran Street
Poleg Industrial Park, P.O. Box 8511
Netanya 42504, Israel
011-972-9-863-6888
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F ______
-------
Indicate by check mark whether the registrant by furnishing
the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes ________ No X
-------
<PAGE>
COMMTOUCH SOFTWARE LTD.
FORM 6-K
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 (Audited) and June 30, 2000 (Unaudited)
Condensed Consolidated Statements of Operations for the Three
and Six months ended June 30, 2000 and 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six
months ended June 30, 2000 and 1999 (Unaudited)
Note to Condensed Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 3. Information Incorporated by Reference
Item 4. Exhibits
Exhibit Description of Document
------- -----------------------
1 July 20, 2000 Press Release: "971% Revenue Growth
Over Comparable Period in Previous Fiscal Year"
2 Amended and Restated Articles of Association of
Commtouch Software, Ltd., as amended and restated on
August 10, 2000.
3 Amendment to the Commtouch Software Ltd. 1999
Nonemployee Directors Stock Option Plan approved by
shareholders on August 10, 2000.
Signatures
Exhibit Index
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 49,078 $ 65,996
Marketable securities 7,805 18,050
Trade receivables 7,402 2,378
Prepaid marketing expenses 626 4,508
Prepaid expenses and other accounts receivable 3,398 1,648
--------- ---------
Total current assets 68,309 92,580
Other assets 1,890 1,608
Long-term Investment 3,000 --
Property and Equipment, net 14,167 6,148
--------- ---------
$ 87,366 $ 100,336
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of bank loans and capital leases 62 120
Accounts payable 2,766 1,510
Employees and payroll accruals 1,757 1,032
Other liabilities and accrued expenses 2,585 1,865
--------- ---------
Total current liabilities 7,170 4,527
--------- ---------
Long-term Portion Capital Leases 37 44
Accrued Severance Pay 704 453
--------- ---------
741 497
--------- ---------
Shareholders' Equity
Ordinary shares 219 213
Additional paid-in capital 137,029 133,403
Deferred compensation (4,254) (5,779)
Notes receivable from shareholders (3,631) (1,060)
Unrealized holding gains (losses) (25) 63
Accumulated deficit (49,883) (31,528)
--------- ---------
Total shareholders' equity 79,455 95,312
--------- ---------
$ 87,366 $ 100,336
========= =========
The accompanying note is an integral part of these condensed
consolidated financial statements.
2
<PAGE>
COMMTOUCH SOFTWARE LTD.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(unaudited) (unaudited)
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ................................. $ 5,911 $ 553 $ 10,183 $ 898
Cost of revenue .......................... 2,784 606 4,905 1,040
-------- -------- -------- --------
Gross profit(loss) ....................... 3,127 (53) 5,278 (142)
-------- -------- -------- --------
Operating expenses:
Research and development, net .......... 2,270 510 4,263 850
Sales and marketing .................... 6,404 1,363 11,150 1,971
General and administrative ............. 2,576 683 4,682 1,327
Amortization of the prepaid marketing
expense .............................. 1,941 -- 3,882 --
Amortization of deferred compensation .. 762 1,013 1,525 1,372
-------- -------- -------- --------
Total operating expenses ....... 13,953 3,569 25,502 5,520
-------- -------- -------- --------
Operating loss ........................... (10,826) (3,622) (20,224) (5,662)
Interest and other income (expense), net . 931 6 1,869 (265)
-------- -------- -------- --------
Net loss ................................. $ (9,895) $ (3,616) $(18,355) $ (5,927)
======== ======== ======== ========
Basic and diluted net loss per share ..... $ (0.65) $ (1.66) $ (1.21) $ (3.17)
======== ======== ======== ========
Weighted average number of shares used in
computing basic and diluted net loss per
share .................................. 15,261 2,178 15,205 1,869
======== ======== ======== ========
<FN>
The accompanying note is an integral part of these condensed
consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months
ended
June 30,
---------------------
(unaudited)
2000 1999
-------- --------
Cash flows from operating activities:
Net loss ............................................. $(18,355) $ (5,927)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................... 2,420 498
Amortization of deferred compensation and warrants
issued for service received and bank line of
credit .......................................... 1,525 1,752
Amortization of the prepaid marketing expenses .... 3,882 --
Increase in trade receivables ..................... (5,024) (332)
Increase in other accounts receivable and prepaid
expenses ........................................ (1,750) (1,294)
Increase in accounts payable ...................... 56 351
Increase in other liabilities ..................... 1,410 368
Increase (Decrease) in deferred revenue ........... 35 10
Increase in accrued severance pay, net ............ 59 49
-------- --------
Net cash used in operating activities ........... (15,742) (4,525)
-------- --------
Cash flows from investing activities:
Proceeds from sale of available for sale marketable
securities ...................................... 10,157 --
Purchase of Long-term investments .................... (3,000) --
Long-term Deposits ................................... (90) --
Purchase of property and equipment ................... (9,239) (1,721)
-------- --------
Net cash used in investing activities ........... (2,172) (1,721)
-------- --------
Cash flows from financing activities:
Short-term bank line of credit, net .................. -- (1,328)
Payment of capital lease ............................. (65) (53)
Proceeds from issuance of shares ..................... 1,061 18,456
-------- --------
Net cash provided by financing activities ....... 996 17,075
-------- --------
Increase (Decrease) in cash and cash equivalents ....... (16,918) 10,829
Cash and cash equivalents at the beginning of the
period ................................................. 65,996 834
-------- --------
Cash and cash equivalents at the end of the period ..... $ 49,078 $ 11,663
======== ========
Supplemental disclosure of cash flows activity:
Cash paid during the year:
Interest ............................................... $ 8 $ 42
======== ========
Ordinary shares issued for notes receivable from
shareholders ........................................... $ 2,571 $ 887
======== ========
The accompanying note is an integral part of these condensed
consolidated financial statements.
<PAGE>
COMMTOUCH SOFTWARE LTD.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The condensed consolidated financial statements have been prepared by
Commtouch Software Ltd., without audit, and include the accounts of
Commtouch Software Ltd. and its wholly-owned subsidiaries (collectively
the "the Company"). Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the
Company, the financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation
of the financial position at June 30, 2000 and the operating results
and cash flows for the reported periods. These financial statements and
notes should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31,
1999, which were filed with the Securities and Exchange Commission on
Form 20-F.
The results of operations for the three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected
for future quarters or the year ending December 31, 2000.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the note thereto in Part I, Item 1 of this
quarterly report and with Management's Discussion and Analysis of Financial
Conditions and Results of Operations contained in the Company's Annual Report on
Form 20-F for the year ended December 31, 1999.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. Commtouch's actual results and the timing of certain
events may differ significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, those discussed in "Risk Factors" in the Company's Annual Report on Form
20-F for the year ended December 31, 1999.
Overview
Commtouch Software Ltd. ("Commtouch" or "the Company") and its subsidiaries 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 website to their end users. As of June 30, 2000, we had
approximately 260 global customers. Through our customers' sites we serve
approximately 15.8 million active emailboxes. We also serve over 1.3 million
active emailboxes to small businesses and websites through our ZapZone Network.
Results of Operations
<TABLE>
The following table sets forth financial data for the three and six months ended
June 30, 2000 and 1999 (in thousands):
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(unaudited) (unaudited)
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ................................... $ 5,911 $ 553 $ 10,183 $ 898
Cost of Revenues ........................... 2,784 606 4,905 1,040
-------- -------- -------- --------
Gross profit (loss) ........................ 3,127 (53) 5,278 (142)
-------- -------- -------- --------
Operating expenses:
Research and development, net ............ 2,270 510 4,263 850
Sales and marketing ...................... 6,404 1,363 11,150 1,971
General and administrative ............... 2,576 683 4,682 1,327
Amortization of prepaid marketing expenses 1,941 -- 3,882 --
Amortization of deferred compensation .... 762 1,013 1,525 1,372
-------- -------- -------- --------
Total operating expenses ............ 13,953 3,569 25,502 5,520
-------- -------- -------- --------
Operating loss ............................. (10,826) (3,622) (20,224) (5,662)
Interest and other income (expense), net ... 931 6 1,869 (265)
-------- -------- -------- --------
Net loss ................................... $ (9,895) $ (3,616) $(18,355) $ (5,927)
======== ======== ======== ========
</TABLE>
Comparison of the Three and Six Months Ended June 30, 2000 and 1999
Revenues. Revenues increased from $553,000 for the three months ended June 30,
1999 to $5.9 million for the three months ended June 30, 2000. Revenue increased
from $898,000 for the six months ended June 30, 1999 to $10.2
<PAGE>
million for the six months ended June 30, 2000. The key factor contributing to
the growth of our revenues for the three and six month periods ended June 30,
2000 is the increase in the number of business partners that have contracts that
are generating revenue for the Company. During the second quarter of 2000, only
one of our customers contributed more than 10 percent of our revenues. Our
backlog increased from $22 million at the end of the first quarter of 2000 to
$29 million at the end of the second quarter 2000, an increase of 32 percent.
Cost of Revenues. Cost of revenues increased from $606,000 for the three months
ended June 30, 1999 to $2.8 million for the three months ended June 30, 2000 and
increased from $1.1 million for the six months ended June 30, 1999 to $4.9
million for the six months ended June 30, 2000. Cost of revenues consist
primarily of personnel related costs, Internet data center services from third
party providers, depreciation of equipment, and Internet access. We expect cost
of revenues to increase on an absolute basis, primarily as a result of an
increase in our revenues, but to decrease as a percentage of revenues due to
economies of scale.
Research and Development Costs, Net. Research and development costs consist
primarily of personnel and related costs, depreciation of equipment and
supplies. Our research and development costs increased from $510,000 for the
three months ended June 30, 1999 to $2.3 million for the three months ended June
30, 2000 and from $850,000 for the six months ended June 30, 1999 to $4.3
million for the six months ended June 30, 2000, due primarily to higher
personnel and related costs. We expect that research and development costs, net,
will increase in absolute dollar amounts due to increases in personnel costs
related directly to new employees being hired to develop new service offerings,
however such costs are expected to decrease as a percentage of revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel
and related costs, public relations, advertising and direct sales efforts. Sales
and marketing expenses increased from $1.4 million for the three months ended
June 30, 1999 to $6.4 million for the three months ended June 30, 2000 and
increased from $2.0 million for the six months ended June 30, 1999 to $11.1
million for the six months ended June 30, 2000 due primarily to marketing and
other costs to support the growth of our revenues. The primary reason for this
cost increase is added personnel and related costs and an aggressive worldwide
advertising campaign including print media, online advertising, and trade show
and conference appearances. If we achieve significant revenue growth, we expect
that sales and marketing expenses will start to decline as a percentage of total
revenues as we hire additional personnel and continue to support and develop the
email service business.
General and Administrative. General and administrative costs consist primarily
of personnel and related costs, outside consultants, professional services and
facility costs. Our general and administrative expenses increased from $683,000
for the three months ended June 30, 1999 to $2.6 million for the three months
ended June 30, 2000, and increased from $1.3 million for the six months ended
June 30, 1999 to $4.7 million for the six months ended June 30, 2000, due
primarily to the move of our subsidiary Commtouch Inc. to larger facilities. We
expect general and administrative costs to increase on an absolute basis due to
increased personnel and related costs, higher facility costs associated with
additional personnel and other costs necessary to support and develop the email
service business. We expect that general and administrative expenses as a
percentage of total revenues will start to decline in the next several quarters.
Amortization of the Prepaid Marketing Expenses. Amortization of the prepaid
marketing expenses relating to the Go2Net and Microsoft warrants increased from
zero for the three months ended June 30, 1999 to $1.9 million for the three
months ended June 30, 2000 and from zero for the six months ended June 30, 1999
to $3.9 million for the six months ended June 30, 2000. The prepaid marketing
expense is being amortized using the straight line method over the minimum term
of the commercial agreements with these two companies, or one year.
Amortization of Deferred Compensation. Stock-based employee deferred
compensation expenses decreased from $1.0 million for the three months ended
June 30, 1999 to $762,000 for the three months ended June 30, 2000 and increased
from $1.4 million for the six months ended June 30, 1999 to $1.5 million for the
six months ended June 30, 2000. The deferred compensation is being amortized
using the sum-of-digits method over the vesting schedule, generally four years.
Interest and other income (expense), net. Interest and other income (expense),
net increased from a net income of $6,000 for the three months ended June 30,
1999 to a net income of $931,000 for the three months ended June 30,
<PAGE>
2000 and from a net expense of $265,000 for the six months ended June 30, 1999
to a net income of $1.9 million for the six months ended June 30, 2000, due
primarily to interest income earned from cash and cash equivalents generated
from the initial public offering.
Liquidity and Capital Resources
We have financed our operations principally from the sale of equity securities
and to a lesser extent from bank loans and royalty-bearing research and
development and marketing grants from the Israeli government. On July 16, 1999,
the Company raised $70,786,000, net of underwriters commission ($66,177,000 net
of expenses), from the public offering (including the exercise of the
underwriters' overallotment option) and the private placement that was part of
the strategic partnership with Go2Net and Vulcan Ventures. On December 29, 1999
we raised an additional $20.0 million from the sale of ordinary shares to
Microsoft Corporation upon the exercise of a warrant issued in connection with
an email services agreement with Microsoft. As of June 30, 2000, we had $49.0
million in cash and cash equivalents.
Net cash provided by financing activities was $996,000 for the six months ended
June 30, 2000. Net cash provided by financing activities primarily consisted of
cash received from employees related to the exercise of stock options. Net cash
used in operating activities was $15.7 million for the six months ended June 30,
2000. Net cash used for operating activities is comprised of net loss for the
six months, partially offset by depreciation and amortization expenses. Net cash
used in investing activities was $2.2 million for the six months ended June 30,
2000. These investing activities consisted of purchases of property and
equipment, sale of available for sale securities, and purchase of long-term
investments.
As of June 30, 2000 we had net working capital of $61.1 million.
Effective Corporate Tax Rates
Our tax rate will reflect a mix of the U.S. statutory tax rate on our U.S.
income and the Israeli tax rate discussed in our Annual Report on Form 20-F
filed with the Commission in June 2000. We expect that most of our taxable
income will be generated in Israel. Israeli companies are generally subject to
corporate tax at the rate of 36% of taxable income. The majority of our income,
however, is derived from our company's capital investment program with Approved
Enterprise status under the Law for the Encouragement of Capital Investments in
two separate plans, and is therefore eligible for certain tax benefits. Pursuant
to these benefits, we will enjoy a tax exemption on income derived during the
first two years in which such investment plans produce taxable income (provided
that we do not distribute such income as a dividend) and a reduced tax rate of
10% to 25% for an additional period of five to eight years depending on the
level of foreign investment in Commtouch. All of these tax benefits are subject
to various conditions and restrictions. There can be no assurance that we will
obtain approval for additional Approved Enterprise programs, or that the
provisions of the law will not change. Moreover, notwithstanding these tax
benefits, to the extent we receive income from countries other than Israel, such
income may be subject to withholding tax. Since we have incurred tax losses
through December 31, 1999, we have not yet used the tax benefits for which we
are eligible.
Proposed Tax Reform
On May 4, 2000, a committee chaired by the Director General of the Israeli
Ministry of Finance, Avi Ben-Bassat, issued a report recommending a sweeping
reform in the Israeli system of taxation. The proposed reform would
significantly alter the taxation of individuals, and would also affect corporate
taxation. In particular, the proposed reform would reduce, but not eliminate,
the tax benefits available to approved enterprises such as ours. The Israeli
cabinet has approved the recommendations in principle, but implementation of the
reform requires legislation by Israel's Knesset. The Company cannot be certain
whether the proposed reform will be adopted, when it will be adopted or what
form any reform will ultimately take.
Impact of Inflation and Currency Fluctuations
Most of our sales are in dollars. However, a large portion of our costs relates
to our operations in Israel. A substantial portion of our operating expenses,
primarily our research and development expenses, is denominated in NIS. For the
purposes of our financial statements, costs not effectively denominated in
dollars are translated to dollars when recorded, at prevailing exchange rates
and will increase if the rate of inflation in Israel exceeds the
<PAGE>
devaluation of the NIS as compared to the dollar or if the timing of such
devaluations lags considerably behind inflation. Consequently, we are and will
be affected by changes in the prevailing NIS/dollar exchange rate. We might also
be affected by the dollar exchange rate to the major European and Asian
currencies, due to the fact that we derive revenues from business partners in
Europe and Asia.
In recent years (until 1997), inflation in Israel generally exceeded the
devaluation of the NIS against the dollar and the Company experienced increases
in the dollar cost of its operations in Israel. Because exchange rates between
the NIS and the dollar fluctuate continuously (albeit with a historically
declining trend in the value of the NIS), exchange rate fluctuations and
especially larger periodic devaluations will have an impact on our profitability
and period-to-period comparisons of our results. The effects of foreign currency
remeasurements are reported in our 1999 Consolidated Financial Statements in
current operations.
The representative exchange rate, as reported by the Bank of Israel, was NIS
4.084 for one dollar on June 30, 2000.
Qualitative and Quantitative Disclosure about Market Risk
We develop our technology in Israel and provide our services in North America,
India, Europe and the Far East. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. As most of our sales are currently made
in U.S. dollars, a strengthening of the dollar could make our services less
competitive in foreign markets. Our interest expense on our capital lease
obligations with a U.S. leasing company is sensitive to changes in the general
level of U.S. interest rates. Due to the nature and level of our debts, we have
concluded that there is currently no material market risk exposure. Therefore,
no quantitative tabular disclosures are required.
PART II. OTHER INFORMATION
Item 3. Information Incorporated by Reference
The information in this Report on Form 6-K is incorporated by reference into all
Registration Statements which we have filed or which we will file in the future
under the Securities Act of 1933, as amended, which permit such reports to be so
incorporated.
Item 4. Exhibits
The exhibits listed on the Exhibit Index, attached hereto, are incorporated by
reference.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMTOUCH SOFTWARE, LTD.
-------------------------------
(Registrant)
Date By
----------------------- -----------------------
James E. Collins
Chief Financial Officer
<PAGE>
Exhibit Index
Exhibit Description of Document
------- -----------------------
1 July 20, 2000 Press Release: "971% Revenue Growth Over
Comparable Period in Previous Fiscal Year"
2 Amended and Restated Articles of Association of Commtouch
Software, Ltd., as amended and restated on August 10, 2000.
3 Amendment to the Commtouch Software Ltd. 1999 Nonemployee
Directors Stock Option Plan approved by shareholders on August
10, 2000.
<PAGE>
EXHIBIT 1
Commtouch Reports Record Revenues in Q2 2000
--------------------------------------------
971% Revenue Growth Over Comparable Period in Previous Fiscal Year
Santa Clara, California (July 20, 2000) -- Commtouch (Nasdaq: CTCH), the
worldwide leader in outsourced email and messaging solutions, today announced
results for the second quarter 2000. Revenues for the second quarter of 2000
were a record $5.9 million, an increase of 971% over second quarter 1999
revenues of $553,000 and a 37% increase over first quarter 2000 revenues of $4.3
million. As of June 30, 2000, the Company had a backlog from contracts amounting
to approximately $29 million that will be recognized as revenue over future
quarters.
"The stronger-than-ever demand for outsourced messaging services across all
markets, coupled with our robust and reliable service, are the drivers behind
our consistent growth," said Gideon Mantel, chairman and CEO of Commtouch. "Our
gross profit margin of 53% is outstanding." Mantel added, "The release during Q2
2000 of our Service Provider Solution targeted at the enterprise market greatly
enhances the reach of Commtouch services. In addition, we are equally as proud
of our service uptime records that are setting the industry standard for
reliability. Overall, Q2 2000 is the building block for the future of Commtouch
outsourced services."
Commtouch announced deals with UrbanMedia, myCIO.com, a Network Associates, Inc.
(Nasdaq: NETA) business, and Exodus Communications(TM), Inc. (Nasdaq: EXDS) to
provide premier email and messaging solutions. In addition, Commtouch became the
leading email provider in India through its agreements with the Times Group
portal indiatimes.com; indya.com, Gnan.com and Indiaacross.com;
brandquivier.com; GrabMail and Indian Doctors Network.
-MORE-
<PAGE>
In addition, Commtouch announced its plans to develop an outsourced email
solution built on the Microsoft Hosted Exchange 2000 platform. Through our
Hosted Exchange platform, Commtouch will enable corporate customers worldwide to
retain control while outsourcing their email operations, by providing the most
scalable, reliable and secure, messaging systems available.
In Q2 2000, we opened Commtouch kk, based in Tokyo. We hired a Japanese CEO who
is assembling a local team to expand the efforts that Commtouch has made in
Japan during the last five years.
Gross profit for the first quarter of 2000 was $3.1 million representing an
industry leading gross profit margin of 53% compared to a gross profit margin of
50% for the first quarter of 2000.
Net loss excluding amortization of the prepaid marketing asset resulting from
warrants issued to Go2Net and Microsoft and stock-based employee deferred
compensation for the quarter ended June 30, 2000, was $0.47 per share as
compared to $0.38 share for the first quarter of 2000.
Net loss for the quarter ended June 30, 2000 was $9.9 million compared to $8.5
million for the quarter ended March 31, 2000. Net loss per share for the quarter
ended June 30, 2000, was $0.65 per share compared to net loss per share of $0.56
for the first quarter, 2000.
About Commtouch
Commtouch is the leading global provider of outsourced integrated email and
messaging solutions, currently serving 16 million email boxes worldwide.
Commtouch customizes messaging solutions for more than 400 corporations, ASPs,
ISPs, portals and online companies such as About.com, Asahi-Shimbun, Citibank,
Ericsson, Exodus Communications, First USA, France Telecom, Go2Net, IFX,
myCIO.com, Microsoft, Multimania.com, Scandinavia Online, Talk City, Toshiba,
Tutopia and Yupi.
Commtouch offers the most integrated suite of online messaging applications in
25 languages that include features such as online calendaring, unified
messaging, wireless integration and direct marketing applications. The Company,
in addition to providing a destination site solution product, has a service
provider solution (featuring primary email boxes) for ASPs, ISPs and small to
medium enterprises. Founded in 1991, Commtouch has offices in Silicon Valley,
Los Angeles, New York City, Miami, London and Tel Aviv.
Additional Company information may be obtained by visiting www.commtouch.com.
<PAGE>
-MORE-
This press release contains forward-looking statements, including projections
about our business, within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. For example,
statements in the future tense, and statements including words such as "expect",
"plan", "estimate", anticipate", or "believe" are forward-looking statements.
These statements are based on information available to us at the time of the
release; we assume no obligation to update any of them. The statements in this
release are not guarantees of future performance and actual results could differ
materially from our current expectations as a result of numerous factors,
including business conditions and growth in the Internet market; commerce and
the general economy both domestic as well as international; fewer than expected
new-partner relationships; competitive factors including pricing pressures;
technological developments; and products offered by competitors; availability of
qualified staff for expansion; and technological difficulties and resource
constraints encountered in developing new products as well as those risks
described in the Company's registration statement on Form 20-F filed with the
SEC which is available through www.sec.gov.
(C) 2000 Commtouch Software, Ltd. All rights reserved.
Commtouch is a registered trademark of Commtouch Software Ltd.
Terms and product names in this document may be trademarks of others.
--MORE
<PAGE>
COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2000 1999
-------- --------
ASSETS
Current Assets:
Cash and short term investments $ 56,883 $ 84,046
Trade receivables 7,402 2,378
Prepaid marketing expenses relating to Go2Net and
Microsoft warrants 624 4,508
Prepaid expenses and other accounts receivable 3,400 1,648
-------- --------
Total current assets 68,309 92,580
Severance Pay Fund 546 354
Security Deposit 1,344 1,254
Investment - at Equity 3,000 --
Property and Equipment, net 14,167 6,148
-------- --------
$ 87,366 $100,336
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,766 $ 1,510
Employees and payroll accruals 1,757 1,032
Deferred revenue 596 561
Other liabilities 2,051 1,424
-------- --------
Total current liabilities 7,170 4,527
-------- --------
Long-term Portion of Bank Loans and Capital Leases 37 44
Accrued Severance Pay 704 453
-------- --------
741 497
-------- --------
Shareholders' Equity 79,455 95,312
-------- --------
$ 87,366 $100,336
======== ========
-MORE-
<PAGE>
COMMTOUCH SOFTWARE LTD.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Email Services - revenue ................. $ 5,911 $ 553 $ 10,183 $ 898
Cost of Email services - revenue ........ 2,784 606 4,905 1,040
-------- -------- -------- --------
Gross profit (loss) ...................... 3,127 (53) 5,278 (142)
-------- -------- -------- --------
Operating expenses:
Research and development, net .......... 2,270 510 4,263 850
Sales and marketing .................... 6,404 1,363 11,150 1,971
General and administrative ............. 2,576 683 4,682 1,327
Amortization of the prepaid marketing
expenses relating to Go2Net & Microsoft
warrant ................................ 1,941 -- 3,882 --
Amortization of stock-based employee
deferred compensation ............... 762 1,013 1,525 1,372
-------- -------- -------- --------
Total operating expenses ....... 13,953 3,569 25,502 5,520
-------- -------- -------- --------
Operating loss ........................... (10,826) (3,622) (20,224) (5,662)
Interest income (expense) and other, net . 931 6 1,869 (265)
-------- -------- -------- --------
Net loss ................................. $ (9,895) $ (3,616) $(18,355) $ (5,927)
======== ======== ======== ========
Basic and diluted net loss per share ..... $ (0.65) $ (1.66) $ (1.21) $ (3.17)
======== ======== ======== ========
Weighted average number of shares used in
computing basic and diluted net loss per
share .................................. 15,261 2,178 15,205 1,869
======== ======== ======== ========
Net Loss
- as adjusted (1) ........................ $ ( 7,192) $ (2,603) $(12,948) $ (4,555)
======== ======== ======== ========
Basic and diluted net loss per share
- as adjusted (1) ........................ $ (0.47) $ (1.20) $ (0.85) $ (2.44)
======== ======== ======== ========
<FN>
(1) Excludes charges for amortization of stock-based employee compensation and
Go2Net and Microsoft Warrants.
</FN>
</TABLE>
<PAGE>
EXHIBIT 2
Amended and Restated Articles of Association
of Commtouch Software Ltd.
August 10, 2000
THE COMPANIES LAW
-----------------
A COMPANY LIMITED BY SHARES
---------------------------
ARTICLES OF ASSOCIATION
of
COMMTOUCH SOFTWARE LTD.
1. Preliminary
1.1. Construction. In these Articles, each of the following terms shall have the
respective meaning appearing next to it, if not inconsistent with the subject or
context:
1.1.1. "Articles" - These Articles of Association, as amended from time to time.
1.1.2. "Board" - the board of directors appointed under these Articles.
1.1.3. "Company" - Commtouch Software Ltd.
1.1.4. "Companies Law" - The Companies Law, 5759-1999 and any regulations
promulgated thereunder.
1.1.5. "General Meeting" - an Annual Meeting or a Special Meeting as defined in
Article 10.2.1.
1.1.6. "New Securities" - any shares of the Company and all rights, options or
warrants to purchase capital shares and securities of any type whatsoever that
are, or may become, convertible into shares, except for shares, rights, options,
warrants or other securities issued upon conversion of any New Securities into
shares of the Company, or upon the exchange of any shares exchangeable into
shares of another class.
1.1.7. "Shareholder" -
(a) A holder of one or more of the shares of the Company;
(b) a person registered as such in the Register of Shareholders;
(c) a person who holds a share certificate.
1.1.8. "Register of Shareholders" - The Register of Shareholders pursuant to
Article 13.
1.1.9. "Year and Month" - A Gregorian month or year.
1.2. Any capitalized term used but not otherwise defined in these Articles shall
have the meaning ascribed to it in the Companies Law.
3. Public Company
The Company is a Public Company as such term is defined in the Companies Law.
4. Share Capital
4.1. The authorized share capital of the Company is NIS 2,000,000 divided into
forty million (40,000,000) Ordinary Shares of nominal value NIS 0.05 per share.
4.2. The Ordinary Shares shall have all the rights, powers and authorities
associated with the shares of the Company, including the power to appoint
directors, to receive notice of, and to vote in, General Meetings of the
Company, and to receive dividends and any surplus upon the liquidation of the
Company.
4.3. If at any time the share capital is divided into different classes of
shares, then, unless the conditions of allotment of such class provide
otherwise, the rights, additional rights, advantages, restrictions and
conditions attached or not attached to any class, at any given time, may be
modified, enhanced, added or abrogated by the Company by resolution at a meeting
of the holders of the shares of such class.
5. Issuance of Securities
5.1. The unissued shares of the Company shall be under the control of the Board.
5.2. The Board shall have the power to allot, issue or otherwise dispose of
shares to such persons, at such times, on such terms and conditions, and either
at par or less than par, at a premium, for cash or other consideration, in whole
or in part, at a discount or with payment of commission, with such preferred or
deferred rights, restrictions or conditions, all in accordance
<PAGE>
with the provisions of the Companies Law and as the Board shall deem fit from
time to time, provided that such shares do not exceed the registered share
capital of the Company. The Board of Directors shall also have the power to give
any person the option to acquire from the Company any shares, either at par or
less than par, at a premium, for cash or other consideration, in whole or in
part, at a discount or with payment of commission, all in accordance with the
provisions of the Companies Law and as the Board shall deem fit from time to
time.
5.3. The Board may resolve to issue one or more series of debentures; however,
such borrowing power shall be limited to actions that do not unreasonably
jeopardize the Company's ability to pay its debt or to conduct its business as
an entity that seeks to maximize profits.
5.4. The Company may, subject to applicable law, issue redeemable shares and
redeem the same.
6. Reorganization of Capital
6.1. Increase of Capital
6.1.1. The Company may, from time to time, by resolution of the Shareholders,
whether or not all the shares then authorized have been issued, and whether or
not all the shares issued have been called for payment, increase its authorized
share capital. Any such increase shall be in such amount and shall be divided
into shares of such nominal amounts, with such rights and preferences and
subject to such restrictions, as such resolution shall provide.
6.1.2. Except to the extent otherwise provided in such resolution, any new
shares included in the authorized share capital increased under Article 6.1.1
shall be subject to all the provisions of these Articles which are applicable to
shares included in the existing share capital, without regard to class (and, if
such new shares are of the same class as a class of shares included in the
existing share capital, to all of the provisions that are applicable to shares
of such class included in the existing share capital).
6.2. Consolidation, Subdivision, Cancellation and Reduction of Capital.
The Company may, from time to time, by resolution of the Shareholders (subject
to applicable law):
6.2.1. consolidate all or any part of its issued or unissued share capital into
shares of a per share nominal value that is greater than the per share nominal
value of its existing shares;
6.2.2. subdivide its shares (issued or unissued) or any of them into shares of
lesser nominal value than is fixed by these Articles;
6.2.3. cancel any shares that have not been issued or subscribed for, and
decrease the amount of its authorized share capital by the amount of the shares
so canceled, subject to any commitment (including a conditional commitment)
given by the Company in respect of such shares.
6.2.4. reduce its share capital in any manner, and with and subject to any
consent required by law.
6.3. With respect to any action that may result in fractional shares, the Board
may settle any difficulty that may arise with regard thereto as it deems fit,
and in connection with any such consolidation or other action that may result in
fractional shares may, without limitation:
6.3.1. determine, as to the holder of the shares so consolidated, which issued
shares shall be consolidated into a share of a larger nominal value per share;
6.3.2. allot, in contemplation of or subsequent to such consolidation or other
action, shares or fractional shares sufficient to preclude or remove fractional
share holdings;
6.3.3. redeem, in the case of redeemable shares and subject to the Companies
Law, such shares or fractional shares sufficient to preclude or remove
fractional share holdings; or
6.3.4. cause the transfer of fractional shares by certain Shareholders to other
Shareholders so as most expediently to preclude or remove any fractional share
holdings, and cause the transferees of such fractional shares to pay the
transferors of such fractional shares the fair value thereof, and the Board is
hereby authorized to act in connection with such transfer as agent for the
transferors and transferees of any such fractional shares, with full power of
substitution, for the purpose of implementing the provisions of this Article
6.3.
7. Transfer of Shares
7.1. Registration of Transfer
7.1.1. No transfer of shares shall be registered in the Register of Shareholders
unless one of the following conditions has been met:
7.1.1.1. a proper writing or instrument of transfer (in any customary form or
any other form satisfactory to the Board) signed by the transferee and the
transferor, together with the share certificate(s) and such other evidence of
title as the Board may reasonably require, were submitted to the Company, and
the relevant provisions in these Articles to effect a transfer of shares have
been fully complied with. Until the transferee has been registered in the
Register of Shareholders in respect of the shares so transferred, the Company
may continue to regard the transferor as the owner thereof.
7.1.1.2. The Company received a court order requiring the change in the Register
of Shareholders.
7.1.1.3. The Company received proof that the legal requirements for the
assignment of rights to any Shares were fulfilled.
7.1.1.4. The occurrence of a condition that is sufficient, under these Articles,
to effect the change in the Register of Shareholders.
7.2. Decedent's Shares
7.2.1. In case of a share registered in the names of two or more holders, the
Company may recognize the survivor(s) as the sole owner(s) thereof unless and
until the provisions of Article 7.2.2 have been effectively invoked.
7.2.2. Any person becoming entitled to a share in consequence of the death of
any person, upon producing evidence of the grant of probate or letters of
administration or order of inheritance (or such other evidence as the Board may
reasonably deem sufficient), shall be registered as a Shareholder in respect of
such share, or may, subject to the regulations as to transfer herein contained,
transfer such share.
7.3. Receivers and Liquidators
7.3.1. The Company may recognize any receiver, liquidator or similar official
appointed to wind up, dissolve or otherwise liquidate a corporate Shareholder,
and a trustee, manager, receiver, liquidator or similar official appointed in
bankruptcy or in connection with the reorganization of, or similar proceeding
with respect to a Shareholder or its properties, as being entitled to the shares
registered in the name of such Shareholder.
7.3.2. Such receiver, liquidator or similar official appointed to wind up,
dissolve or otherwise liquidate a corporate Shareholder, and such trustee,
manager, receiver, liquidator or similar official appointed in bankruptcy or in
connection with
<PAGE>
the reorganization of, or similar proceeding with respect to, a Shareholder or
its properties, upon producing such evidence as the Board may deem sufficient as
to his authority to act in such capacity or under this Article, shall with the
consent of the Board (which the Board may grant or refuse in its absolute
discretion) be registered as a Shareholder in respect of such shares, or may,
subject to the regulations as to transfer contained in these Articles, transfer
such shares.
8. Limitation of Liability
The liability of each Shareholder shall be limited to at least the
payment of the nominal value of its shares, unless the Company issues
shares for consideration that is less than the nominal value of such
shares, in accordance with, and subject to, the terms and conditions
set forth in Section 304 of the Companies Law.
9. Amendments to the Articles
The Company may amend these Articles by resolution of the Shareholders.
The Company shall not amend the Articles in a manner that adversely affects the
rights of a Shareholder without obtaining the consent of all Shareholders that
are adversely affected by such modification. For the avoidance of doubt, any
amendment that affects all the Shareholders in the same manner shall not be
deemed to constitute a modification of rights associated with specific shares.
10. General Meetings
10.1. The Powers of the General Meeting
The following matters of the Company shall be decided in a General Meeting of
Shareholders:
10.1.1. Amendment of these Articles.
10.1.2. Exercise of the powers vested in the Board in the event that the Board
is unable to exercise such powers, as provided in Section 52(a) of the Companies
Law.
10.1.3. Appointment and termination of the Company's auditors.
10.1.4. Approval of actions and transactions that are required pursuant to
Sections 254 and 255, and 270 through 275, of the Companies Law.
10.1.5. Increase and reduction of the authorized share capital of the Company in
accordance with Sections 286 and 287 of the Companies Law.
10.1.6. Approval of a merger in accordance with Section 320(a) of the Companies
Law.
10.1.7. Discussion of the financial statements at an Annual Meeting (as defined
below).
10.1.8. Appointment of Independent Directors in accordance with Section 239(b)
of the Companies Law.
10.2. Annual Meetings and Special Meetings
10.2.1. An Annual General Meeting shall be held at least once in every calendar
year (within a period of not more than 15 months after the last preceding Annual
General Meeting), at such time and at such place as determined by the Board.
Such Annual General Meetings shall be referred to as "Annual Meetings". Any
other Shareholders meetings shall be referred to as "Special Meetings".
10.2.2. The agenda at an Annual Meeting shall include a discussion of the annual
financial statements of the Company and of the report submitted by the Board
that shall include explanations concerning the various events that had an
influence on the financial statements.
10.3. Convening a General Meeting
10.3.1. The Board may, whenever it thinks fit, convene a Special Meeting, at
such time and place as may be determined by the Board, and shall be obliged to
do so upon the receipt of a written request from (i) either 2 directors or 25%
of the directors then in office, (ii) a Shareholder or group of Shareholders
that holds at least 5% of the issued and outstanding shares of the Company and
at least 1% of the voting rights in the Company, or a Shareholder or group of
Shareholders that holds at least 5% of the voting rights in the Company, as
provided in Section 63 of the Companies Law.
10.3.2. Subject to the provisions of Companies Law and any regulations
promulgated thereunder, a notice of a General Meeting need not be delivered to
each Shareholder. A resolution may be proposed and adopted at a General Meeting
even though the notice prescribed in this Article has not been given, subject to
the consent of all of the Shareholders entitled to vote thereon.
10.3.3. The accidental omission to give notice of a meeting to any Shareholder
or Shareholders, or the non-receipt of notice sent to such Shareholder, shall
not invalidate the proceedings at such meeting.
10.4. Proceedings at a General Meeting
10.4.1. The Agenda: The agenda for a General Meeting shall be determined by the
Board, and shall include (i) in the case of a Special Meeting, the matters for
which the Special Meeting was convened pursuant to Section 63 of the Companies
Law, and (ii) matters requested by a Shareholder or Shareholders holding not
less than (1%) of the voting rights in the General Meeting, provided that such
proposed matter is appropriate for discussion in a General Meeting. Only
resolutions on matters that are specified in the agenda shall be adopted at such
Special Meeting.
10.4.2. Quorum:
10.4.2.1. No business shall be transacted at a
General Meeting unless a legal quorum
is present, and no resolution may be
passed unless a legal quorum is present
at the time such resolution is voted
upon.
10.4.2.2. In the absence of a contrary provision
in these Articles or in the Companies
Law, two or more Shareholders, present
in person or by proxy and holding
shares conferring in the aggregate at
least 25% of the outstanding voting
power of the Company shall constitute a
legal quorum at General Meetings.
10.4.2.3. If within half an hour from the time
scheduled for a General Meeting a legal
quorum is not present, the meeting
shall be adjourned to the same day in
the next week, at the same time and
place, or to such other day and at such
other time and other place as the Board
may determine in a notice to the
Shareholders. If within half an hour
from the time scheduled for the
adjourned meeting a legal quorum is not
present, then any two Shareholders
entitled to vote, present in person or
by proxy, shall constitute a legal
quorum for such adjourned meeting and
shall be
<PAGE>
entitled to resolve any matters on
the agenda of the meeting.
10.4.3. Chairman: The Chairman of the Board shall preside at every General
Meeting of the Company and shall be appointed as the Chairman of the General
Meeting. If a Chairman of the Board was not appointed, or if the Chairman of the
Board is not present within 15 minutes after the time scheduled for the meeting
or is unwilling to take the chair, the Shareholders present shall choose someone
of their number to be the chairman of such meeting. The office of Chairman of a
General Meeting shall not, by itself, entitle the holder to vote at any General
Meeting nor shall it grant him a second or casting vote (without derogating,
however, from the right of such Chairman to vote as a shareholder or proxy of a
shareholder if, in fact, he is also a shareholder or such proxy).
10.4.4. Power to Adjourn: The Chairman of a General Meeting at which a quorum is
present may, with the consent of the holders of a majority of the voting power
represented in person or by proxy and voting on the question of adjournment, and
shall if so directed by the meeting, adjourn the meeting from time to time and
from place to place, but no business shall be transacted at any adjourned
meeting except business that might lawfully have been transacted at the meeting
as originally called.
10.4.5. Voting Power: Every matter submitted to the General Meeting shall be
decided by a vote. Any vote in a General Meeting shall be conducted in
accordance with the voting rights that each Shareholder is entitled to in
accordance with the number of shares granting voting rights that are held by
such Shareholder.
10.4.6. Adoption of Resolutions at General Meetings: Subject to the provisions
of the Companies Law, a resolution proposed at any General Meeting shall be
deemed adopted if approved by a majority of the voting shares represented at
such meeting in person or by proxy. A declaration by the Chairman of the General
Meeting that a resolution has been carried unanimously, or carried by a
particular majority, or defeated, and an entry to that effect in the minute book
of the Company shall be conclusive evidence of the fact without proof of the
number or proportion of the votes recorded in favor of or against such
resolution.
10.5. Resolutions in Writing.
A resolution in writing signed by the Shareholders holding at such time all the
issued shares having the right to vote at General Meetings, or to which all such
Shareholders had agreed to in writing (by letter, telegram, email, telex,
facsimile or otherwise), shall have the same force, for any purpose whatsoever,
as if unanimously adopted by a General Meeting duly convened and held.
10.6. Voting Rights and Proxies
10.6.1. No Shareholder shall be entitled to vote in any General Meeting (or be
counted as a part of the quorum) unless he fully paid any amounts due, whether
with or without any demand for payment for his shares.
10.6.2. In the absence of
contrary provisions in these Articles or in any condition or term annexed to any
shares of any class, each Shareholder participating in a General Meeting shall
have one vote for each share giving a right to vote in a General Meeting that is
held by such Shareholder.
10.6.3. If two or more persons are registered as joint holders of any share, the
vote of the person first registered in the Register of Shareholders shall be
accepted to the exclusion of the vote(s) of the other joint holder(s).
10.6.4. A company or other corporate body being a Shareholder of the Company may
duly authorize any person to be its representative at any General Meeting or to
authorize or deliver a proxy on its behalf. Any person so authorized shall be
entitled to exercise on behalf of such Shareholder all the power that the latter
could have exercised if it were a natural person. Upon the request of the
Chairman of the meeting, written evidence of such authorization (in form
acceptable to the Chairman of the meeting) shall be delivered to him.
10.6.5. Any Shareholder entitled to vote may vote either in person or by ballot,
as provided in Sections 87 to 89 of the Companies Law or by proxy (and the proxy
need not be a Shareholder) or, if the Shareholder is a company or other
corporate body, by a representative authorized pursuant to Article 10.6.4.
10.6.6. Instrument of Appointment: An instrument appointing a proxy shall be in
writing and shall be substantially in the following form:
"I_____________________ of ________________________
(Name of Shareholder) (Address of Shareholder)
being a Shareholder of Commtouch Software Ltd. hereby appoint
_______________________of_________________________
(Name of Proxy) (Address of Proxy)
as my proxy to vote for me and on my behalf at the General
Meeting of the Company to be held on the ____ day of
_____________, ______ and at any adjournment(s) thereof.
Signed this ______ day of _______, _______,
(Signature of Appointor)"
or in any usual or common form or in such other form as may be
approved by the Board. Such proxy shall be duly signed by the
appointor or such person's duly authorized attorney or, if
such appointor is a company or other corporate body, under its
common seal or stamp or the hand of its duly authorized
agent(s) or attorney(s) in accordance with its constitutional
documents.
10.6.7. The instrument appointing a proxy (and the power of attorney or other
authority, if any, under which such instrument has been signed) shall either be
delivered to the Company (at its principal place of business or at the offices
of its registrar or transfer agent, or at such place as the Board may specify)
not less than 24 hours before the time fixed for the meeting at which the person
named in the instrument proposes to vote, or presented to the Chairman at such
General Meeting. An instrument
<PAGE>
appointing a proxy that is not limited in time shall expire 12 months after the
date of its execution. If the appointment shall be for a specified period,
whether in excess of 12 months or not, the instrument shall be valid for the
period stated therein.
10.6.8. A vote cast in accordance with an instrument appointing a proxy shall be
valid despite the prior death or bankruptcy of the appointing Shareholder (or of
his attorney-in-fact, if any, who signed such instrument), or the transfer of
the share in respect of which the vote is cast, unless written notice of such
matters shall have been received by the Company or by the Chairman of such
General Meeting prior to such vote being cast.
10.6.9. An instrument appointing a proxy shall be deemed revoked (i) upon
receipt by the Company of an instrument or written notice signed by the person
who signed such instrument or by the Shareholder appointing such proxy canceling
the appointment thereunder (or the authority pursuant to which such instrument
was signed) or of an instrument appointing a different proxy, provided such
notice of cancellation or instrument appointing a different proxy were so
received at the place and within the time for delivery of the instrument revoked
thereby as referred to in Article 10.6.7, or (ii) if the appointing Shareholder
is present in person at the meeting for which such instrument of proxy was
delivered, upon receipt by the Chairman of such meeting of written notice from
such Shareholder of the revocation of such appointment, or if and when such
Shareholder votes at such meeting. A vote cast in accordance with an instrument
appointing a proxy shall be valid despite the revocation or purported
cancellation of the appointment, or the presence in person or vote of the
appointing Shareholder at a meeting for which it was rendered, unless such
instrument of appointment was deemed revoked in accordance with the foregoing
provisions of this Article 10.6.9 at or prior to the time such vote was cast.
11. The Board of Directors
11.1. Number of Directors
The number of Directors shall be fixed by the General Meeting by resolution of
the Shareholders. Until otherwise resolved in a General Meeting, the Board shall
initially consist of 10 directors.
11.2. Election and Removal of Directors
Directors shall be elected at the Annual General Meeting by the vote of the
holders of a majority of the voting power represented at such meeting in person
or by proxy and voting on the election of directors, and each Director shall
serve, subject to Article 11.8 hereof, and with respect to a Director appointed
pursuant to Article 11.4 hereof subject to such Article, until the Annual
General Meeting next following the Annual General Meeting or General Meeting at
which such Director was elected pursuant to this Article or Article 11.4 hereof
and until his successor is elected, or until his earlier removal pursuant to
this Article 11.2. The holders of a majority of the voting power represented at
a General Meeting in person or by proxy and voting thereon at such meeting shall
be entitled to remove any Director(s) from office, to elect Directors instead of
Directors so removed or to fill any vacancy, however created (including any
position to which a director was not elected), in the Board. In the case of an
outside director or any other director for whom the Companies Law prescribes a
different method of election or removal from that specified above, the
provisions of the Companies Law shall govern.
11.3. Qualification of Directors
No person or entity shall be disqualified to serve as a director or an Alternate
Director by reason of his not holding shares in the Company or by reason of his
having served as a director in the past.
11.4. Continuing Directors in the Event of Vacancies
In the event of one or more vacancies in the Board of Directors, the remaining
Directors may continue to act in every matter and, pending the filling of any
vacancy pursuant to the provisions of Article 11.2, may appoint Directors to
fill any such vacancy temporarily; provided, however, that if they number less
than a majority of the number determined pursuant to Article 11.1 of these
Articles, they may act only in an emergency or to fill the office of Director
that has become vacant up to the minimum number or in order to call a General
Meeting of the Company for the purpose of electing Directors to fill any or all
vacancies, so that at least a majority of the number of Directors determined
pursuant to Article 11.1 are in office as a result of such meeting.
11.5. Remuneration of Directors
A Director shall be paid remuneration by the Company for his services as a
Director, to the extent such remuneration shall have been approved by a General
Meeting of the Company.
11.6. Conflict of Interests
Subject to the provisions of the Companies Law, no Director shall be
disqualified by virtue of his office from holding any office or relationship of
profit with the Company or with any company in which the Company shall be a
shareholder or have another interest, or from contracting with the Company as
vendor, purchaser or otherwise, nor shall any such contract, or any contract or
arrangement entered into by or on behalf of the Company in which any Director
shall in any way be interested, be avoided, nor, other than as required under
the Companies Law, shall any Director be liable to account to the Company for
any profit arising from any such office or relationship of profit or realized
from such contract or arrangement by reason only of such Director's holding that
office or of the fiduciary relations thereby established, but the nature of his
interest, as well as any material fact or document, must be disclosed by him at
the meeting of the Board of Directors at which the contract or arrangement is
first considered, if his interest then exists, or in any other case no later
than the first meeting of the Board of Directors after the acquisition of his
interest.
11.7. Alternate Directors
11.7.1. A Director may, by written notice to the Company given in the manner set
forth in Article 11.7.2 below, appoint any individual (whether or not such
person is then a member of the Board of Directors) as an alternate for himself
(in these Articles referred to as an "Alternate Director"), remove such
Alternate Director and appoint another Alternate Director in place of any
Alternate Director appointed by him whose office has been vacated for any
reason. Unless the appointing Director, by the instrument appointing an
Alternate Director or by written notice to the Company, limits such appointment
to a specified period of time or restricts it to a specified meeting or action
of the Board of Directors, or otherwise restricts its scope, the appointment
shall be for all purposes, and for a period of time, concurrent with the term of
the appointing Director.
<PAGE>
11.7.2. Any notice to the Company pursuant to Article 11.7.1 shall be given in
person to, or by sending the same by mail to the attention of, the Chairman of
the Board of the Company at the principal office of the Company or to such other
person or place as the Board shall have determined for such purpose, and shall
become effective on the date fixed therein, or upon the receipt thereof by the
Company at the place specified above, whichever is later.
11.7.3. An Alternate Director shall have all the rights and obligations of a
director; provided, however, that (i) an Alternate Director shall have no
standing at any meeting of the Board or any Committee of the Board while the
director for whom such Alternate Director was appointed is present; (ii) he may
not in turn appoint an alternate for himself (unless the instrument appointing
him otherwise expressly provides); and (iii) the Alternate Director is not
entitled to remuneration.
11.7.4. The office of an Alternate Director shall be vacated under the
circumstances, mutatis mutandis, set forth in Article 11.8, and such office
shall ipso facto be vacated if the director for whom the Alternate Director was
appointed ceases to be a director.
11.8. Termination of Office
Without derogating from any law, the office of a director shall automatically be
vacated, ipso facto, prior the end of the term of his appointment upon the
following:
11.8.1. Upon resignation, which shall become effective on the date a written
notice of such resignation is delivered to the Company, or a later date
specified in the notice.
11.8.2. If convicted of a felony, as provided in Section 232 of the Companies
Law.
11.8.3. Pursuant to a court's decision, as provided in Section 233 of the
Companies Law.
11.8.4. Upon death or when declared bankrupt.
11.8.5. If he be found lunatic or becomes of unsound mind.
11.9. No Corporate Director
11.9.1. A corporation will not be qualified to act as a director.
11.10. Chairman of the Board of Directors
The Board may from time to time elect one of its members to
be Chairman of the Board, remove such Chairman from office,
and appoint another in his place. The Chairman of the Board
shall preside at every meeting of the Board, but if there is
no such Chairman, or if at any meeting the Chairman is not
present within 15 minutes after the time fixed for holding
the meeting or is unwilling to act as Chairman, the
Directors present shall choose someone of their number to be
chairman of such meeting. The Chairman will not have any
casting or additional vote by reason of his position as
Chairman of the Board.
11.11. Powers of the Board and Delegation of Powers
11.11.1 The determination of the policy of the business of
the Company and the supervision on the performance
of the General Manager of the Company shall be
vested in the Board, which may exercise all such
powers and do all such acts and things as the
Company is authorized to exercise and do and which
are not required by law or these Articles to be
done by the Company by action of its Shareholders
at a General Meeting. The authority conferred on
the Board by this Article shall be subject to the
provisions of the Companies Law, these Articles and
any resolution consistent with these Articles
adopted from time to time by the Company at a
General Meeting; provided, however, that no such
resolution shall invalidate any prior act done by
or pursuant to a decision of the Board that would
have been valid if such resolution had not been
adopted.
11.11.2 Subject to the provisions of the Companies Law, the
Board may from time to time, by power of attorney
or otherwise, appoint any person, company, firm or
body of persons to be the attorney or attorneys of
the Company at law or in fact for such purpose(s)
and with such powers, authorities and discretions,
and for such period and subject to such conditions,
as it deems fit, and any such power of attorney or
other appointment may contain such provisions for
the protection and convenience of persons dealing
with any such attorney as the Board deems fit, and
may also authorize any such attorney to delegate
all or any of the powers, authorities and
discretions vested in him.
11.12. Proceedings of the Board
11.12.1. Meetings
11.12.1.1. The Board may meet and adjourn its meetings and otherwise regulate
such meetings and proceedings in accordance with the Company's needs; provided,
however, that the Board must meet at least once every 3 months.
11.12.1.2. The Chairman of the Board may convene a meeting of the Board at any
time, and shall be required to convene a meeting to be held not later than 14
days following a request by any Director of the Company; provided, that in the
event that a meeting is convened under the circumstances described in Section
122(d), 169 or 257 of the Companies Law, the meeting of the Board shall be
convened without delay.
Notice of any such meeting shall be given by telephone or by mail, email, telex,
telegram or facsimile or other form of electronic communication, a reasonable
time before the meeting.
11.12.2. Failure to Deliver Notices: Despite anything to the contrary in these
Articles, failure to deliver notice to a Director of any such meeting may be
waived by such Director, and a meeting shall be deemed to have been duly
convened despite such defective notice if such failure or defect is waived prior
to action being taken at such meeting by all Directors entitled to participate
and vote in such meeting to whom notice was not duly given.
11.12.3. Board Meetings by Means of Telecommunication: A meeting of the Board
may be conducted by using any communication device, provided that all directors
participating in such meeting can simultaneously hear each other.
11.12.4. Quorum: No business shall be transacted at a meeting of the Board
unless the requisite legal quorum is present (by means provided under Articles
11.12.3) when the meeting proceeds to business. Until otherwise decided by the
Board, a legal quorum at a meeting of the Board shall be constituted by the
presence (by means provided under Article 11.12.4) of a majority of
<PAGE>
the number of directors then in office.
11.12.5. Exercise of Powers of the Board: A resolution proposed at any meeting
of the Board shall be deemed adopted if approved by a majority of the Directors
present when such resolution is put to a vote and voting thereon.
11.12.6. The Agenda: The agenda for a meeting of the Board shall be determined
by the Chairman of the Board, and shall include matters determined by the
Chairman of the Board, matters for which a meeting of the Board was convened
pursuant to Article 11.12.1.2, and any matter requested by a director or the
General Manager at least 3 days before the meeting.
11.13. Resolutions in Writing
A resolution in writing signed all the directors then in office and lawfully
entitled to vote thereon, or to which all the directors have given their written
consent (by letter, email, telegram, telex, facsimile or otherwise) shall be
deemed to have been unanimously adopted by a meeting of the Board duly convened
and held.
11.14. Audit Committee
11.14.1. The Board shall appoint an Audit Committee that shall be composed of
three members of the Board. The Chairman of the Board, any director that is
employed by the Company or who provides the Company with services on a regular
basis, and any controlling shareholder (or a relative of a controlling
shareholder) may not be members of the Audit Committee.
11.14.2. The Audit Committee shall have the duties set forth in Section 117 of
the Companies Law.
11.14.3. Approval by the majority of the members of the Audit Committee shall be
deemed approval of the Audit Committee.
11.15. Committees of the Board
11.15.1. Subject to the provisions of the Companies Law, the Board may delegate
any or all of its powers to committees, each consisting of one or more persons
who are directors, and it may from time to time revoke such delegation or alter
the composition of any such committee. Any committee so formed (in these
Articles referred to as a "Committee of the Board") shall, in the exercise of
the powers so delegated, conform to any regulations imposed on it by the Board.
The meetings and proceedings of any such Committee of the Board shall, mutatis
mutandis, be governed by the provisions of these Articles that regulate the
meetings of the Board. Unless otherwise expressly provided by the Board in
delegating powers to a Committee of the Board, such Committee shall not be
empowered to further delegate such powers.
11.15.2. The Board may revoke any resolution of any Committee of the Board;
provided, however, that any such revocation shall not detract from the validity
of any transaction entered into with a person that did not know of such
revocation.
11.16. Validity of Acts Despite Defects
Subject to the provisions of the Companies Law, all acts done bona fide at any
meeting of the Board, or of a Committee of the Board, or by any person(s) acting
as Director(s), shall, even if it is subsequently discovered that there was some
defect in the appointment of the participants in such meeting or any of them or
any person(s) acting as aforesaid, or that they or any of them were
disqualified, be as valid as if there were no such defect or disqualification.
12. General Manager
12.1. The Board shall from time to time appoint one or more persons, whether or
not Directors, as General Manager or General Managers, and may confer upon such
person(s), and from time to time modify, or revoke such title(s) and such duties
and authorities as the Board may deem fit, subject to such limitations and
restrictions as the Board may from time to time prescribe. Such appointment(s)
may be either for a fixed term or without any limitation of time, and the Board
may from time to time (subject to the provisions of the Companies Law and of any
contract between any such person and the Company) fix his, her or their salaries
and emoluments, remove or dismiss such persons from office and appoint another
or others in their place.
12.2. Unless otherwise determined by the Board, the General Manager shall have
the authority with respect to the day to day management of the Company in the
ordinary course of business, in the framework of, and subject to, the policy,
guidelines and instructions of the Board from time to time.
12.3. The General Manager shall have all the management and implementation
authorities that are not expressly delegated in the Articles or by the Companies
Law, to another organ of the Company, and will be subject to the supervision of
the Board.
12.4. The General Manager may, with the consent of the Board, delegate certain
of his duties to another person who is subject to his supervision.
12.5. The General Manager shall notify the Chairman of the Board of any unusual
event that is material to the Company; if the office of Chairman of the Board is
vacant, or the Chairman of the Board refuses or is unable to act, such
notification shall be made to all the Directors then in office.
12.6. The General Manager shall periodically furnish the Board with reports in
matters, times and format determined by the Board from time to time. When a
notification or report of the General Manager require the performance of an
action by the Board, then a Board meeting shall be convened without delay.
12.7. The remuneration payable to the General Manager for his services shall be
fixed from time to time (subject to any contract between the General Manager and
the Company) by the Board, and may be fixed as a regular salary, commission on
dividends, profits or revenues of the Company or of any other company in which
the Company has an interest, or by participation in the Company's profits,
combined or separately.
13. Register of Shareholders
13.1. The Company shall maintain a Register of Shareholders in which the
following shall be recorded:
13.1.1. the name, identification card number (if any) and address of every
Shareholder, as such details were provided to the Company;
13.1.2. The number of shares and the particular class of Shares owned by each
Shareholder, noting the nominal value of such shares, if applicable, and in case
the payment for any shares was not fully satisfied, the unpaid amount.
13.1.3. The date on which the shares were issued or transferred to any
Shareholder, as the case may be.
13.1.4. If the shares were serially numbered, the Company will note next to the
name of each Shareholder the serial numbers of the shares held by such
Shareholder.
13.1.5. As for "Dormant Shares" (as defined in Section 308 of the Companies
Law), if any, the Register of Shareholders shall state the exact number of
Dormant Shares and the date on which such shares became "Dormant Shares".
13.1.6. A Shareholder holding shares as a trustee shall be recorded in the
Register of Shareholder with a note of the trusteeship, and the Company shall be
entitled to treat such person as the Shareholder in all respects.
14. Auditors
<PAGE>
14.1. The Company shall appoint one or more certified public accountants to
audit, and provide a report on, the annual financial statements of the Company
(the "Auditors").
14.2. The appointment, authorities, duties, responsibilities, rights,
remuneration and powers of the Auditors shall be fixed by applicable law and
under these Articles. The General Meeting shall have the power to appoint the
Auditors for the maximum time period provided under the Companies Law.
14.3. The Board shall cause accurate books of account to be kept in accordance
with the provisions of any applicable law. Such books of account shall be kept
at the principal office of the Company, or at such other place or places as the
Board may deem fit, and they shall always be open to inspection by all
Directors.
15. Share Certificates
15.1. Share certificates shall be issued under the corporate seal of the Company
(or facsimile thereof) and shall bear the signature (or facsimile thereof) of
two Directors, or the signatures of a Director and the secretary of the Company,
specifically authorized by the Board for this purpose.
15.2. Each Shareholder shall be entitled to one numbered certificate for all the
shares of any class registered in his name, and if the Board so approves, to
several certificates, each for one or more of such shares. Each certificate
shall specify the serial numbers of the shares represented thereby and may also
specify the amount paid up thereon.
15.3. A share certificate registered in the names of two or more persons shall
be delivered to the person first named in the Register of Shareholders in
respect of such co-ownership.
15.4. A share certificate that has been defaced, lost or destroyed may be
replaced, and the Company shall issue a new certificate to replace such defaced,
lost or destroyed certificate upon payment of such fee, and upon the furnishing
of such evidence of ownership and such indemnity, as the Board in its discretion
deems fit.
16. Registered Holder
Except as otherwise provided in these Articles, the Company shall be entitled to
treat the registered holder of each share as the absolute owner thereof, and
accordingly shall not, except as ordered by a court of competent jurisdiction or
as required by statute, be obligated to recognize any equitable or other claim
to, or interest in, such share on the part of any other person.
17. Calls on Shares
17.1. The Board may, from time to time, as it in its discretion deems fit, make
calls for payment upon Shareholders in respect of any sum that has not been paid
up in respect of shares held by such Shareholder and which is not, pursuant to
the terms of allotment or issuance of such shares or otherwise, payable at a
fixed time. Each Shareholder shall pay the amount of every call so made upon him
(and of each installment thereof if the same is payable in installments), to the
person(s) and at the time(s) designated by the Board, as any such time(s) may
subsequently be extended or such person(s) or place(s) changed. Unless otherwise
stipulated in the resolution of the Board (and in the notice referred to below),
each payment in response to a call shall be deemed to constitute a pro rata
payment on account of all the shares of the Shareholder making payment in
respect of which such call was made.
17.2. Notice of any call for payment by a Shareholder shall be given in writing
to such Shareholder not less than 14 days prior to the time of payment fixed in
such notice, and shall specify the time and place of payment, and the person to
whom such payment is to be made. Prior to the time for any such payment fixed in
a notice of a call given to a member, the Board may in its absolute discretion,
by notice in writing to such Shareholder, revoke such call in whole or in part,
extend the time fixed for payment of such call or designate a different place of
payment or person to whom payment is to be made. In the event of a call payable
in installments, only one notice thereof need be given.
17.3. If pursuant to the terms of allotment or issuance of a share, or
otherwise, an amount is made payable at a fixed time (whether on account of such
share or by way of premium), such amount shall be payable at such time as if it
were payable by virtue of a call made by the Board of Directors and for which
notice was given in accordance with this Article, and the provisions of these
Articles with regard to calls (and the non-payment thereof) shall be applicable
to such amount (and the non-payment thereof).
17.4. Joint holders of a share shall be jointly and severally liable to pay all
calls for payment in respect of such share and all interest payable thereon.
17.5. Any amount called for payment that is not paid when due shall bear
interest from the date fixed for payment until actual payment, at such rate (not
exceeding the legal rate under any applicable law) and payable at such time(s)
as the Board may prescribe. The Board may waive any payment of such interest
under this Article.
17.6. With the consent of the Board, any Shareholder may pay to the Company any
amount not yet payable in respect of his shares, and the Board may approve the
payment by the Company of interest on any such amount until the same would be
payable if it had not been paid in advance, at such rate and time(s) as may be
approved by the Board. The Board may at any time cause the Company to repay all
or any part of the money so advanced, without premium or penalty. Nothing in
this Article shall derogate from the right of the Board to make any call for
payment before or after receipt by the Company of any such advance.
18. Forfeiture and Surrender
18.1. If any Shareholder fails to pay an amount payable by virtue of a call, or
interest thereon as provided for in accordance with these Articles, on or before
the day fixed for payment of the same, the Board may at any time after the day
fixed for such payment, so long as such amount or any portion thereof remains
unpaid, forfeit all or any of the shares in respect of which such payment was
called for. All expenses incurred by the Company in attempting to collect any
such amount or interest thereon, including without limitation attorney's fees
and costs of legal proceedings, shall be added to, and shall for all purposes
(including the accrual of interest thereon) constitute a part of, the amount
payable to the Company in respect of such call.
18.2. Upon the adoption of a resolution as to the forfeiture of a Shareholder's
shares, the Board shall cause notice thereof to be given to such Shareholder,
which notice shall state that, in the event of the failure to pay the entire
amount so payable by a date specified in the notice (which date shall be not
less than 14 days after the date such notice is given and which may be extended
by the Board), such shares shall ipso facto be forfeited; provided, however that
prior to such date the Board may nullify such resolution of forfeiture, but no
such nullification shall estop the Board from adopting a further resolution of
forfeiture in respect of the non-payment of the same amount.
18.3. Without derogating from any of the provisions of this Article 18, whenever
shares are forfeited as herein provided, all
<PAGE>
dividends, if any, theretofore declared in respect thereof and not actually
paid, shall be deemed to have been forfeited at the same time.
18.4. Any share forfeited or surrendered as provided herein shall become the
property of the Company, and the same, subject to the provisions of these
Articles, may be sold, re-allotted or otherwise disposed of as the Board deems
fit. From the date of forfeiture until the date such forfeited shares are sold,
re-allotted or otherwise disposed of, such forfeited shares shall be deemed
"Dormant Shares" as defined in Section 308 of the Companies Law.
18.5. Any Shareholder whose shares have been forfeited or surrendered shall
cease to be a Shareholder in respect of the forfeited or surrendered shares, but
shall nonetheless be liable to pay, and shall promptly pay, to the Company all
calls, interest and expenses owing upon or in respect of such shares at the time
of forfeiture or surrender, together with interest thereon from the time of
forfeiture or surrender until actual payment at the rate prescribed in this
Article 18, and the Board, in its discretion, may enforce the payment of such
moneys or any part thereof. In the event of such forfeiture or surrender, the
Company, by resolution of the Board, may accelerate the date(s) of payment of
any or all amounts then owing to the Company by the Shareholder in question (but
not yet due) in respect of all shares owned by such Shareholder, solely or
jointly with another.
18.6. The Board may at any time, before any share so forfeited or surrendered
shall have been sold, re-allotted or otherwise disposed of, nullify the
forfeiture or surrender on such conditions as it deems fit, but no such
nullification shall estop the Board from re-exercising its powers of forfeiture
pursuant to this Article 18.
18.7. If pursuant to the terms of allotment or issuance of a share, or
otherwise, an amount is made payable at a fixed time (whether on account of such
share or by way of premium), such amount shall be payable at such time as if it
were payable by virtue of a call made by the Board and for which notice was
given in accordance with this Article, and the provisions of these Article shall
be applicable to such amount as if a call was given at the date fixed for
payment.
18.8. Except to the extent that the same may be waived or subordinated in
writing, the Company shall have a first and paramount lien upon all the shares
registered in the name of each Shareholder (without regard to any equitable or
other claim or interest in such shares on the part of any other person), and
upon the proceeds of the sale thereof, for his debts, liabilities and
obligations to the Company arising from any amount payable by such Shareholder
in respect of any unpaid or partly paid share, whether or not such debt,
liability or obligation has matured. Such lien shall extend to all dividends
from time to time declared or paid in respect of such share. Unless otherwise
provided, the registration by the Company of a transfer of shares shall be
deemed to be a waiver on the part of the Company of any lien existing on such
shares immediately prior to such transfer.
18.9. The Board may cause the Company to sell a share subject to such a lien
when the debt, liability or obligation giving rise to such lien has matured, in
such manner as the Board deems fit, but no such sale shall be made unless such
debt, liability or obligation has not been satisfied within 14 days after
written notice of the intention to sell shall have been served on such
Shareholder, his executors or administrators.
18.10. The net proceeds of any such sale, after payment of the costs thereof,
shall be applied in or toward satisfaction of the debts, liabilities or
obligations of such Shareholder in respect of such share (whether or not the
same have matured), and any residue shall be paid to the Shareholder, his
executors, administrators or assigns.
18.11. Upon any sale of a share after forfeiture or surrender or for enforcing a
lien, the Board may appoint any person to execute an instrument of transfer of
the share so sold and cause the purchaser's name to be entered in the Register
of Shareholders in respect of such share. The purchaser shall be registered as
the shareholder and shall not be bound to see to the regularity of the sale
proceedings or to the application of the proceeds of such sale, and after his
name has been entered in the Register of Shareholders in respect of such share,
the validity of the sale shall not be impeached by any person, and the remedy of
any person aggrieved by the sale shall be in damages only and against the
Company exclusively.
19. Indemnity and Insurance
19.1. Subject to the provisions of the Companies Law, the Company may enter into
a contract for the insurance of its Office Holders, for actions or omissions
done in capacity as Office Holders, in whole or in part, against any of the
following:
19.1.1. breach of the duty of care owed to the Company or a third party;
19.1.2. breach of the fiduciary duty owed to the Company, provided that the
Office Holder acted in good faith and had a reasonable grounds to believe that
his action would not harm the Company's interests; and
19.1.3. monetary liability imposed on him in favor of a third party.
19.2. Subject to the provisions of the Companies Law, the Company is entitled
retroactively to indemnify any Office Holder, or provide a prior undertaking to
indemnify an Office Holder, where such prior undertaking is limited to
categories of events that the Board believes are foreseeable and to a reasonable
sum determined by the Board in the circumstances, for any of the following
events:
19.2.1. monetary liability imposed on an Office Holder in favor of a third party
in a judgment, including a settlement or an arbitral award confirmed by a court,
for an act that such Office Holder performed by virtue of his being an Office
Holder of the Company; and
19.2.2. reasonable costs of litigation, including attorney's fees, expended by
an Office Holder or for which an Office Holder has been charged by a court, in
an action brought against him by or on behalf of the Company or a third party,
or in a criminal action in which an Office Holder was found innocent, or in a
criminal offense in which an Office Holder was convicted and in which a proof of
criminal intent is not required.
19.3. Subject to the provisions of the Companies Law, the Company may exculpate
an Office Holder in advance from liability, or any part of liability, for
damages sustained by a breach of duty of care to the Company.
20. Dividends
20.1. No dividend shall be paid otherwise than in accordance with Chapter 2 of
Part 7 of the Companies Law.
20.2. Subject to the rights of Shareholders as to dividends, any dividend paid
by the Company shall be allocated among the Shareholders entitled thereto, 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 such
dividend is being paid without taking into account the premium paid up for the
shares. The amount paid up on account of a share that has not yet been called
for payment or fallen due for payment and upon which the Company pays interest
to the shareholder shall not be deemed, for the purposes of this Article, to be
a sum paid on account of the share.
20.3. Subject to the provisions of Section 303 of the Companies Law, no dividend
shall be paid otherwise than out of the Profits of the Company, as defined in
Section 302(b) of the Companies Law.
<PAGE>
20.4. No dividend shall carry interest as against the Company.
20.5. Subject to the provisions of these Articles and the Companies Law, the
Company may cause any moneys, investments or other assets forming part of the
undivided distributable profits of the Company to be capitalized and distributed
among such of the Shareholders as would be entitled to receive the same if
distributed by way of dividend and in the same proportion.
20.6. For the purpose of giving full effect to any resolution under this Article
20, the Board may settle any difficulty that may arise in regard to the
distribution as it deems expedient, and in particular may issue fractional
certificates, and may fix the value for distribution of any specific assets, and
may determine that cash payments shall be made to any Shareholders upon the
basis of the value so fixed, or that fractions of less value than the nominal
value of one share may be disregarded in order to adjust the rights of all
parties, and may vest any such cash, shares, debentures, debenture stock or
specific assets in trustees upon such trusts for the persons entitled to the
dividend or capitalized fund as may seem expedient to the Board.
20.7. Without derogating from this Article 20, the Board may give an instruction
that shall prevent the distribution of a dividend to the holders of shares on
which the full nominal amount has not been paid up.
20.8. The Board may retain any dividend or other moneys payable or property
distributable in respect of shares on which the Company has a lien, and may
apply the same in or toward satisfaction of the debts, liabilities or
obligations in respect of which the lien exists.
20.9. The Board may retain any dividend or other moneys payable or property
distributable in respect of a share in respect of which any person is, under
Article 7.2 or Article 7.3, entitled to become a Shareholder, or which any
person is, under such Articles, entitled to transfer, until such person shall
become a Shareholder in respect of such share or shall transfer the same.
21. Minutes
21.1. Minutes of each General Meeting, of each meeting of the Board and of each
meeting of a Committee of the Board shall be recorded and duly entered in books
provided for that purpose, and shall be maintained by the Company at its
principal office or such other place as shall be determined by the Board. Such
minutes shall, in all events, set forth the name of the persons at the meeting
and all resolutions adopted at the meeting.
21.2. Any such minutes, if purporting to be signed by the chairman of the
meeting or by the chairman of the next succeeding meeting, shall constitute
prima facie evidence of the matters recorded therein.
22. Charitable Contributions
To the extent permitted by the Companies Law, the Company may elect to
contribute reasonable amounts to worthy causes.
23. Notices
23.1. Any written notice or other document may be served by the Company upon any
Shareholder either personally or by sending it by prepaid mail (airmail if sent
internationally) addressed to such Shareholder's address as it appears in the
Register of Shareholders or such other address as he may have designated in
writing for the receipt of notices and other documents, provided however that
the Board may resolve that any such address must be located within the State of
Israel.
23.2. Notwithstanding anything to the contrary contained herein, notice by the
Company of a General Meeting which is published in at least two daily newspapers
in the State of Israel within the time otherwise required for giving notice of
such meeting under Article 10.3.2 hereof and containing the information required
to be set forth in such notice under such Article shall be deemed to be a notice
of such meeting duly given, for purposes of these Articles, to any Shareholder
whose address as registered in the Register of Shareholders is located in the
State of Israel.
23.3. Any written notice or other document may be served by any Shareholder upon
the Company by tendering the same in person to the Secretary or the General
Manager of the Company at the principal office of the Company or by sending it
by prepaid registered mail (airmail if posted internationally) to the Company at
its principal office. Any such notice or other document shall be deemed to have
been served when actually tendered if hand delivered, or 48 hours (7 business
days if sent internationally) after it has been posted (or when actually
received by the addressee if sooner). Notice sent by telegram, telex, facsimile
or e-mail shall be deemed to have been served when actually received by the
addressee. A notice that is defectively addressed or that otherwise fails to
comply with the provisions of this Article 23.3 shall nevertheless be deemed to
have been served if and when actually received by the addressee.
23.4. All notices to be given to the Shareholders shall, with respect to any
share to which such persons are jointly entitled, be given to whichever of such
persons is named first in the Register of Shareholders, and any notice so given
shall be sufficient notice to all the holders of such share.
23.5. Any Shareholder whose address is not listed in the Register of
Shareholders, and who shall not have designated in writing an address for the
delivery of notices, shall not be entitled to receive any notice from the
Company.
23.6. Notwithstanding any other contrary provision of these Articles, the Board
may fix a date, not exceeding ninety (90) days prior to the date of any General
Meeting, as the date as of which shareholders entitled to notice of and to vote
at such meetings shall be determined, and all persons who were holders of record
of voting shares on such date shall be entitled to notice of and to vote at such
meeting.
<PAGE>
EXHIBIT 3
AMENDMENT NO. 2 TO
COMMTOUCH SOFTWARE LTD.
1999 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
I. Section 5(a) of the Plan is amended and restated to read as follows:
5. SHARES SUBJECT TO PLAN.
(a) Aggregate Number. Subject to Section 9, the total
number of Ordinary Shares reserved and available for issuance pursuant
to Options under this Plan shall be 500,000 shares, an increase of
250,000 shares. Such shares may consist, in whole or in part, of
authorized and unissued shares or shares reacquired in private
transactions or open market purchases, but all shares issued under the
Plan regardless of source shall be counted against the 500,000 share
limitation. If any Option terminates or expires without being exercised
in full, the shares issuable under such Option shall again be available
for issuance in connection with other Options. If Ordinary Shares
issued pursuant to an Option are repurchased by the Company, such
Ordinary Shares shall not again be available for issuance in connection
with Options. To the extent the number of Ordinary Shares issued
pursuant to an Option is reduced to satisfy withholding tax
obligations, the number of shares withheld to satisfy the withholding
tax obligations shall not be available for later grant under the Plan.
II. Sections 6(a), (b) and (c) of the Plan are amended and restated to read
as follows:
6. GRANT OF OPTIONS.
(a) Mandatory Initial Option Grants. Subject to the
terms and conditions of this Plan, if any person who is not presently
an officer or employee of the Company is elected or appointed a member
of the Board, then on the effective date of such appointment or
election the Company shall grant to such new Nonemployee Director an
Option to purchase 30,000 shares at an exercise price equal to the Fair
Market Value of such Shares on the date of such option grant. Any
Option granted pursuant to this Section 6(a) shall be referred to as an
"Initial Option." All Nonemployee Directors elected at the August 10,
2000 annual meeting of shareholders, as well as Nonemployee Directors
appointed directly by the Board, will receive an "Initial Option" grant
upon their election or appointment.
(b) Mandatory Annual Option Grants. Subject to the
terms and conditions of this Plan, on the date of the first meeting of
the Board immediately following the annual meeting of shareholders of
the Company (even if held on the same day as the meeting of
shareholders) commencing in 1999, the Company shall grant to each
Nonemployee Director then in office (other than a Nonemployee Director
who received a grant under Section 6(a) on or after the record date for
such annual meeting) an Option to purchase 10,000 shares at an exercise
price equal to the Fair Market Value of such shares on the date of such
option grant. Any Option granted pursuant to this Section 6(b) shall be
referred to as an "Annual Option."
(c) Vesting of Initial Option and Annual Option. Each
Option granted under Section 6(a) or 6(b) shall become exercisable at a
rate of 1/16th of the shares every three months.
II. Except as hereby amended, the Plan remains in full force and effect and
is confirmed in all respects.
