Commtouch Announces Private Placement of $3.9 Million of Ordinary Shares.

Business Editors/High-Tech Writers

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--May 18, 2004

Commtouch(R) (Nasdaq:CTCH), the innovator of industrial-strength anti-spam solutions featuring Recurrent Pattern Detection (RPD) (TM) technology, today announced that it has entered into a definitive agreement for the private placement of 5,131,580 Ordinary Shares of the Company at a purchase price of $.76 per share to existing institutional investors for gross proceeds to the Company of approximately $3.9 million.

The investors also will receive five year warrants to purchase up to an additional 2,565,790 Ordinary Shares, with an exercise price of $.83 per share. In addition, the Company has granted the investors additional investment rights to purchase up to an additional 5,131,580 Ordinary Shares at $.83 per share, together with additional warrants on the same terms as the warrants described above, for a period of one year following the effectiveness of the registration statement covering the resale of the Ordinary Shares underlying these rights.

The closing of the financing is subject to certain closing conditions, including receipt of shareholder approval of an increase in the authorized share capital of the Company and the terms of this transaction. The Company expects to hold a special meeting of its shareholders within the next 40 days.

Gideon Mantel, CEO of Commtouch, remarked: "It is our intention to utilize these funds to accelerate Commtouch's going to market strategy. In addition, we believe that this financing permits us to regain compliance with Nasdaq's minimum shareholder equity listing requirement."

The securities to be issued by Commtouch in the private placement have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. However, as part of the transaction, Commtouch agreed to file a registration statement on Form F-3 with the United States Securities and Exchange Commission for purposes of registering the shares of common stock issuable in the private placement.

Within the next day, the Company plans to file with the SEC on Form 6-K copies of the private placement documentation.

About Commtouch

Commtouch Software Ltd. is an innovator of proprietary anti-spam solutions featuring Recurrent Pattern Detection (TM) technology. Its mission is to protect and preserve the integrity of the world's most important communications tool -- email. The company's core technologies reflect its 13 years of experience as a leading vendor of email software applications and provider of global messaging services. Commtouch's patent-pending technologies are employed in solutions that are sold through channels and resellers and also sold directly to enterprises. In addition, Commtouch anti-spam technologies are incorporated in software applications of security and messaging OEMs (examples including BlueCat Networks, HotBar, Sybari and Waterford Technologies). Commtouch is headquartered in Netanya, Israel and its subsidiary, Commtouch Inc., is based in Mountain View, CA. The company was founded in 1991 and has been publicly traded since 1999 (Nasdaq:CTCH). To learn more about Commtouch visit www.commtouch.com.

Recurrent Pattern Detection and RPD are trademarks and Commtouch is a registered trademark of Commtouch Software Ltd.

This press release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements relating to Commtouch's intent to utilize the investment funds to enhance its marketing efforts and achieve greater market penetration, and to become compliant with Nasdaq's minimum shareholder equity listing requirement. These statements are based on information available to us at the time of this release and 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 or deterioration 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 Annual Reports on Form 20-F and reports on Form 6-K, which are available through www.sec.gov.