Commtouch Secures Funding Through Convertible Loan; Delivers a New Product to Eliminate Spam for Organizations.

Business Editors/High-Tech Writers

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Feb. 13, 2003

Commtouch (Nasdaq:CTCH), a developer and provider of proprietary anti-Spam solutions, today announced that it has signed an agreement with a diverse group of private lenders who have the right to advance a loan of up to $1.25 Million to Commtouch.

Gideon Mantel, Commtouch's CEO, commented: "Securing additional funding in the current economic climate, as the company rolls out its anticipated, proprietary anti-Spam solution, only further validates the company's decision to move in the direction we have taken over the last year. We believe Commtouch is well positioned and has the necessary funds to market its anti-Spam solution."

The loan amount is to be paid in two tranches, with the first and second tranches currently totaling approximately $360,000 and $540,000 respectively. While the first tranche will be secured upon the successful attainment of defined closing conditions (anticipated to occur within a few weeks), the funding of the second tranche is at the lenders' discretion, with the lenders to notify the company by no later than twenty-one days following the closing of the first tranche whether they intend to fund the second tranche.

The loan is to be repaid after three years, unless converted into equity by the lenders or a defined event triggering early repayment is met, and it bears interest at a rate of ten percent per annum. Furthermore, the loan principal and interest may be converted by the lenders into equity in the company at any time during the loan term, at a conversion price of $.25 per Ordinary Share ("Conversion Price").

Warrants for exercise into Commtouch Ordinary Shares will be issued to the lenders as loan amounts are advanced to Commtouch, based on such loan amounts advanced divided by the Conversion Price. Each one-third of the warrants are exercisable at prices per Ordinary Share of $.25, $.33 and $.50 respectively, and the warrants are exercisable at any time within five years of issuance.

As security for repayment of the loaned amounts, the lenders have been granted security interests in all of the assets of the company. Also, the lenders are entitled to nominate one director for election to the board or appoint one observer to the board.

Mr. Mantel added: "This loan brings us not only an infusion of cash, but also provides us with an exceptional opportunity to tap into the resources and exceptional business experience the lenders bring with them to assist us in moving forward with the distribution of our anti-Spam solution. Additionally, certain of the lenders, or their representatives, will be joining our new Advisory Board, the constellation of which will be announced shortly. We truly feel fortunate to have been able to attract such a distinguished group of lenders."

The company plans to file with the SEC a copy of the convertible loan agreement on Form 6-K.

Commtouch has developed a pioneering concept comprised of innovative patent-pending technology and other real-time processes designed to combat the harmful proliferation of unsolicited bulk email (aka, 'Spam') and its resulting drain on corporate IT and human resources. The solution, named ASAP! -- Anti-Spam Adaptive Protection, provides high Spam blocking rates coupled with extremely low false positives to ensure delivery of mission-critical communications -- all achieved with little IT maintenance. A more detailed description of the Commtouch ASAP! solution will be issued in the coming weeks.

About Commtouch

Commtouch Software Ltd. is a developer and provider of proprietary anti-Spam solutions. The company's core technologies reflect its decade of experience as a leading vendor of email software applications and provider of global messaging services. 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's solutions visit our web site at http://www.commtouch.com.

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 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.

Note to Editors: Commtouch(R) is a registered trademark of Commtouch Software Ltd. Other terms and product names in this document may be trademarks of others.