[Letterhead of Commtouch]
--------------------------------------------------------------------------------
To: Compaq Financial Services Corporation                      December 19, 2001
Attn: Rick Steffey and Gary Silverman

                                                                 BY FAX
                                                                 (098-898-4191)

Re: Settlement of Lease Issues

This  is to  document  the  principles  under  which  a more  formal  settlement
agreement will be prepared and signed by Compaq Financial  Services  Corporation
("Compaq"), Commtouch Inc. and Commtouch Software Ltd.

         1.   In resolution of all  outstanding  and further  claims (except for
              indemnification  claims)  of  Compaq  under  that  certain  Master
              Agreement(s) No. 100975 and/or No. 100956 and Schedules 1-4 issued
              thereunder between Compaq and Commtouch Inc., Commtouch Inc. shall
              pay to Compaq the sum $220,000 in two installments as follows:  a)
              $110,000  immediately  upon signing this letter  agreement  and b)
              $110,000 on January 11, 2002

         2.   Commtouch  Inc. and Compaq will jointly  coordinate  the return of
              the equipment  that is the subject of Schedules 1-4 from Commtouch
              Inc. to Compaq.

         3.   On or before December 28, 2001,  Commtouch Software Ltd. shall pay
              to Compaq the sum of $110,780 ($22,156) per month) in  liquidation
              of all past debt under the overseas lease schedule entered into by
              Commtouch Software Ltd. and Compaq (or an affiliate  thereof).  It
              is  understood  that such amount  represents  five months worth of
              lease payments that are currently outstanding.

         4.   Commtouch  Software Ltd.  shall issue Warrants for the purchase of
              200,000  ordinary shares in Commtouch  Software Ltd. This issuance
              will take place on or before January 11, 2002.


Please sign below and return a copy of this to me by fax at 650-864-2006.


Thank you,

/s/ Avner Amram
---------------
Avner Amram, COO
On behalf of Commtouch Inc. and Commtouch Software Ltd.

Compaq Financial Services Corporation


By: Gary Silverman           /s/ Gary Silverman   12/21/01
                             ------------------------------

U.S. Office:                                               International Office:
2029 Stierlia Court                             6 Hazoran Street (P.O. Box 8511)
Mountain View, CA 94043                                    Poleg Industrial Park
Tel: 650-864-2290                                          Netarya, Israel 42504
Fax: 650-864-2006                          Tel: 972-9-8636888 Fax: 972-9-8636863

<PAGE>
                                   SETTLEMENT
                     AND TERMINATION OF SERVICES AGREEMENT

         THIS SETTLEMENT AND TERMINATION OF SERVICES AGREEMENT  ("Agreement") is
made between Exodus Communications,  Inc. ("Exodus"), a Delaware Corporation, on
the one hand, and Commtouch Software ("Company"), on the other

         This Agreement is made in reference to the following facts:

         As of January 9, 2002, Exodus contends that Company owes an outstanding
debt to Exodus in the  amount of  $491,442  as  payment  for  services  provided
through January 1, 2002 by Exodus to Company in accordance with the terms of the
Master Services Agreement,  Professional  Services  Agreement,  or Internet Data
Center Services  Agreement  between Exodus and Company dated March 25, 1998 (the
"Contract"); and

         Company  disputes  its  obligation  to pay the full  amount that Exodus
contends it is owed under the Contract; and

         WHEREAS,  it is now the desire and  intention  of Exodus and Company to
settle and resolve all disputes, differences and claims relating to the Contract
which exist between them as of the date of this Agreement, with the exception of
obligations arising out of this Agreement.

         NOW,  THEREFORE,  AND IN  CONSIDERATION  OF  THE  MUTUAL  PROMISES  AND
RELEASES CONTAINED HEREIN, THE PARTIES DO HEREBY AGREE AS FOLLOWS:

         1. Unless  otherwise  stated in Exhibit A, Company agrees to pay Exodus
the sum of $300,000 on or before January 10, 2002 or the payment shall be deemed
untimely. All payments are to be made by via wire transfer to:

Wells Fargo Bank, Palo Alto, CA
ABA 121000248
ACCT# 4950037887
In the name of Exodus Communications, Inc.

         2. In the event of any  failure to make a timely  payment,  as required
under  Paragraph  1 of this  Agreement,  Company  agrees  to pay the  amount  in
Paragraph 1 as well as any and all reasonable attorneys' fees and costs incurred
by Exodus in collecting such payment balance from Company.

         3. Except for the promises or  obligations  made or  undertaken in this
Agreement,  upon Exodus' receipt of the last payment  required under Paragraph 1
of this  Agreement,  Exodus  and  Company,  on  behalf of  themselves  and their
respective  successors  and  assigns,  each  hereby  releases  the other and its
current and former officers,  directors,  shareholders,  employees,  affiliates,
representatives,  and agents  from any and all  claims,  demands,  and causes of
action of any kind whatsoever,  whether or not now known,  suspected or claimed,
which either ever had, now has, or claims to have had relating or connected  to,
or arising out of, the Contract.  These mutual  releases apply and extend to all
rights, causes of action, or claims asserted, or which could have been asserted,
by either party to this Agreement as of the date of this Agreement, irrespective
of the theory of recovery that could have been asserted provided,  however, that
nothing herein shall be deemed to release  extracontractual  claims or claims or
causes of action the Debtors could bring under chapter 5 of the Bankruptcy Code.

<PAGE>
         4.  It is the  intention  of  Exodus  and  Company  in  executing  this
Agreement and in rendering and  receiving the  consideration  called for by this
Agreement  that  this  Agreement  shall be and is a full and  final  accord  and
satisfaction  and mutual general release of and from all matters relating to the
Contract.

         5. Exodus and  Company  each  acknowledges  that it is aware of Section
1542 of the Civil Code of the State of California, which provides as follows:

     A general  release does not extend to claims  which the creditor  does
     not know or  suspect  to exist in his favor at the time of   executing
     the release,  which if known by him must have materially  affected his
     settlement with the debtor.

Exodus and Company each waives and  relinquishes  any right or benefit  which it
has or may have under Section 1542 of the Civil Code of the State of California.
Exodus  and  Company  each  acknowledge  that they are aware  that they or their
attorneys  or agents may  hereafter  discover  claims or facts in addition to or
different from those which they now know or believe to exist with respect to the
subject  matter  of the  Contract.  Nonetheless,  it is their  intention  fully,
finally, and forever to settle and release all disputes and differences relating
to the Contract,  known or unknown,  suspected or unsuspected,  which now exist,
may  exist,  or  heretofore  have  existed  between  them,  except as  otherwise
expressly  provided in this  Agreement.  In furtherance of this  intention,  the
releases  herein given shall be and remain in effect as full and complete mutual
releases, except as otherwise expressly provided,  notwithstanding the discovery
or existence of any such additional or different claim or fact.

         6.  Any  person  signing  this  Agreement  for a party  represents  and
warrants that he has express authority to sign this Agreement for that party and
agrees to hold the opposing party harmless for any costs or  consequences of the
absence of actual authority to sign.

         7. This  Agreement is made under and will be governed by and  construed
in accordance with the laws of the State of California  (except that body of law
controlling conflicts of law). The language of this Agreement shall be construed
as a whole according to its fair meaning, and not strictly for or against one of
the parties.

         8.  Following  Exodus'  receipt of the payment in  Paragraph 1, Company
agrees to remove its equipment in accordance  with the Contract  within five (5)
business days of such payment and if not, Exodus is hereby  authorized to remove
the Company's  equipment from the Customer Area (as defined in the Contract) for
storage and charge the Company  storage  fees until the  Company's  equipment is
removed.  Exodus shall not be  responsible  for any data stored in the Company's
equipment. Company also agrees that upon execution of this Agreement, (i) Exodus
may enter the Customer Area and take  possession of any and all Exodus  Supplied
Equipment,  Rental Equipment or Exodus equipment in accordance with the Contract
( the "Exodus  Equipment");  (ii) that the Exodus Equipment does not contain any
material  owned by anyone other than Exodus;  and (iii) to the extent the Exodus
Equipment contains any material,  Company agrees to irrevocably assign to Exodus
any such  material.  Equipment  removal by Company  will be  accomplished  under
Exodus-supervised access and in accordance  with the terms of the  Contract.  If
Company  agrees to transfer to Exodus any of Company's  equipment as part of the
terms  of  this  Agreement,  Company  agrees  (i)  to  execute  a Bill  of  Sale
contemporaneously  with this Agreement with the appropriate details; (ii) remove
any material  owned by anyone  other than  Exodus;  and (iii) to the extent such
equipment contains any material,  Company agrees to irrevocably assign to Exodus
any such material.

<PAGE>
         9. If it has not already  done so, upon  execution  of this  Agreement,
Exodus will immediately cease providing all services  purchased by Company under
the Contract.

         10.  Company  agrees not to (i) through oral or written  statements  or
otherwise,  disparage or defame Exodus,  Exodus'  services or products;  or (ii)
take any action,  directly or indirectly,  that may cause damage to or otherwise
impair the business of Exodus or Exodus' current or future customers.

         11.  This  Agreement  may be  executed  in  counterparts  which,  taken
together,  shall constitute one and the same Agreement and shall be effective as
of the date last written below.

         12. The  parties  agree that this  Agreement  and its  specific  terms,
including the existence of this Agreement, will be held in strictest confidence,
and will not be disclosed to anyone  except the parties to it, their  respective
counsel and their necessary agents, any and all policing or regulatory  agencies
and as required by law.

         13. This Agreement  constitutes the entire agreement between Exodus and
Company with respect to the Contract and supersedes all prior  negotiations  and
agreements,  whether  written  or oral.  This  Agreement  may not be  altered or
amended except by an instrument in writing executed by both parties.

         14.  The  parties  understand  and agree that they are  represented  by
counsel of their choice,  and that they  have not relied upon the  statements or
advice of the other party, its agents, counsel or employees.

         IN WITNESS WHEREOF,  Exodus and Company have executed this Agreement on
the dates indicated below.


COMPANY

Signature:   /s/ Avner Amram
          -----------------------------------


Print Name:   AVNER AMRAM
          -----------------------------------


Title:   COO
      ---------------------------------------


Date:  1/10/2002
     ----------------------------------------



EXODUS COMMUNICATIONS, INC.

Signature:   /s/ Michael J. Conner
          -----------------------------------


Print Name:   MICHAEL J. CONNER
          -----------------------------------


Title:   SVP
      ---------------------------------------


Date:  1-10-02
     ----------------------------------------