<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                    FORM 10-Q
                                   (MARK ONE)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended June 30, 2003

                                       or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from _________________ to _______________________

                        COMMISSION FILE NUMBER: 000-30827

                         CLICKSOFTWARE TECHNOLOGIES LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 ISRAEL                                NOT APPLICABLE
     (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NUMBER)

                               34 HABARZEL STREET
                                TEL AVIV, ISRAEL
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972-3) 765-9400

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

     Yes [X]   No [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

     Yes [ ]   No [X]

 As of June 30, 2003, there were 26,418,676 shares of the Registrant's ordinary
        shares, par value 0.02 NIS, outstanding (net of treasury stock).

================================================================================

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                                             CLICKSOFTWARE TECHNOLOGIES LTD.

                                                        FORM 10-Q

                                           FOR THE QUARTER ENDED JUNE 30, 2003

<S>      <C>                                                                                                         <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

(a)  Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002..................................1

(b)  Condensed Consolidated Statements of Operations for the three and six months ended June 30,
         2003 and June 30, 2002 ......................................................................................2

(c)  Condensed Consolidated Statements of Cash Flows..................................................................4

(d)  Notes to the Condensed Consolidated Financial Statements.........................................................5

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations........................7

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk..................................................28

ITEM 4.  Controls and Procedures.....................................................................................29

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings...........................................................................................30

ITEM 2.  Changes in Securities and Use of Proceeds...................................................................30

ITEM 4.  Submission of Matters to a Vote of Security Holders.........................................................30

ITEM 5.  Other Information...........................................................................................31

ITEM 6.  Exhibits and Reports on Form 8-K............................................................................31

Exhibit 3.3..........................................................................................................33

SIGNATURES...........................................................................................................61

Exhibit 31.1.........................................................................................................62

Exhibit 31.2.........................................................................................................63

Exhibit 32.1.........................................................................................................64

Exhibit 32.2.........................................................................................................65
</TABLE>

                                                           -i-
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<CAPTION>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                              CLICKSOFTWARE TECHNOLOGIES LTD.
                                           CONDENSED CONSOLIDATED BALANCE SHEETS
                                             (IN THOUSANDS, EXCEPT SHARE DATA)

                                                                                       JUNE 30,          DECEMBER 31,
                                                                                         2003                2002
                                                                                  ---------------------------------------
                                                                                     (UNAUDITED)
                                                                                  ---------------------------------------
<S>                                                                                   <C>                 <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                                             $    3,910          $    3,400
Short-term investments                                                                     4,143               2,949
Trade receivables, net                                                                     2,773               4,043
Other receivables and prepaid expenses                                                     1,522               1,254
                                                                                  ---------------------------------------
     Total current assets                                                                 12,348              11,646
                                                                                  ---------------------------------------

Long-term investments                                                                        280                 280
Property and equipment, net                                                                1,035               1,250
Severance pay deposits                                                                       807                 781
                                                                                  ---------------------------------------
     Total assets                                                                     $   14,470          $   13,957
                                                                                  =======================================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term debt                                                                       $       --          $       17
Accounts payable and accrued expenses                                                      4,463               5,369
Deferred revenues                                                                          1,365                 411
                                                                                  ---------------------------------------
     Total current liabilities                                                             5,828               5,797
                                                                                  ---------------------------------------

LONG-TERM LIABILITIES:
    Accrued severance pay                                                                  1,511               1,476
                                                                                  ---------------------------------------
     Total long-term liabilities                                                           1,511               1,476
                                                                                  ---------------------------------------
     Total liabilities                                                                     7,339               7,273
                                                                                  ---------------------------------------

SHAREHOLDERS' EQUITY:
Special preferred shares NIS 0.02 par value:
   Authorized - 5,000,000 as of June 30, 2003 and December 31, 2002; no issued
     and outstanding shares as of June 30, 2003 and December 31, 2002

Ordinary shares of NIS 0.02 par value:
   Authorized - 100,000,000 as of June 30, 2003 and December 31, 2002
   Issued - 26,457,676 shares as of June 30, 2003 and 26,412,249 shares as
     of December 31, 2002.
   Outstanding - 26,418,676 shares as of June 30, 2003 and 26,373,249 shares as
     of December 31, 2002.                                                                   103                 102
Additional paid-in capital                                                                69,210              69,196
Deferred stock compensation                                                                   --                (101)
Accumulated deficit                                                                      (62,139)            (62,470)
Treasury stock, at cost: 39,000 shares                                                       (43)                (43)
                                                                                  ---------------------------------------
     Total shareholders' equity                                                            7,131               6,684
                                                                                  ---------------------------------------
Total liabilities and shareholders' equity                                            $   14,470          $   13,957
                                                                                  =======================================


             The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

                                                            -1-
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<TABLE>
<CAPTION>

                                                CLICKSOFTWARE TECHNOLOGIES LTD.
                                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                          (UNAUDITED)

                                                                                          THREE MONTHS ENDED JUNE 30,
                                                                                    -----------------------------------------
                                                                                            2003                2002
                                                                                    -----------------------------------------
<S>                                                                                     <C>                 <C>
Revenues:
   Software license                                                                     $     2,310         $     1,356
   Services                                                                                   2,750               2,105
                                                                                    -----------------------------------------
     Total revenues                                                                           5,060               3,461
                                                                                    -----------------------------------------
Cost of revenues:
   Software license                                                                             305                 281
   Services                                                                                   1,422               1,404
                                                                                    -----------------------------------------
     Total cost of revenues                                                                   1,727               1,685
                                                                                    -----------------------------------------
     Gross profit                                                                             3,333               1,776
                                                                                    -----------------------------------------
Operating expenses:
   Research and development expenses, net                                                       508                 590
   Selling and marketing expenses                                                             1,827               2,708
   General and administrative expenses                                                          767                 403
   Amortization of deferred Stock-based compensation (1)                                         26                  75
                                                                                    -----------------------------------------
     Total operating expenses                                                                 3,128               3,776
                                                                                    -----------------------------------------
     Operating income (loss)                                                                    205              (2,000)
Interest and other income (expenses), net                                                       (32)                172
                                                                                    -----------------------------------------
     Net income (loss)                                                                  $       173         $    (1,828)
                                                                                    -----------------------------------------
Basic and diluted earnings (loss) per share                                             $      0.01         $     (0.07)
                                                                                    -----------------------------------------
Shares used in computing basic and diluted earnings (loss) per share                     25,647,888          25,551,161
                                                                                    -----------------------------------------

(1) Amortization of deferred stock-based compensation would be further classified as follows:

                                                                                               THREE MONTHS ENDED
                                                                                                    JUNE 30,
                                                                                      --------------------------------------
                                                                                             2003               2002
                                                                                      --------------------------------------
Cost of revenues                                                                             $  2                $  5
Research and development expenses                                                               4                  11
Selling and marketing expenses                                                                  1                   3
General and administrative expenses                                                            19                  56
                                                                                      --------------------------------------

Total                                                                                        $ 26                $ 75
                                                                                      ------------------- ------------------


               The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

                                                              -2-
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<TABLE>
<CAPTION>

                                                CLICKSOFTWARE TECHNOLOGIES LTD.
                                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                          (UNAUDITED)

                                                                                           SIX MONTHS ENDED JUNE 30,
                                                                                    -----------------------------------------
                                                                                            2003                2002
                                                                                    -----------------------------------------
<S>                                                                                      <C>                  <C>
Revenues:
   Software license                                                                      $    4,555           $    2,376
   Services                                                                                   5,646                4,191
                                                                                    -----------------------------------------
     Total revenues                                                                          10,201                6,567
                                                                                    -----------------------------------------
Cost of revenues:
   Software license                                                                             436                  317
   Services                                                                                   3,099                2,791
                                                                                    -----------------------------------------
     Total cost of revenues                                                                   3,535                3,108
                                                                                    -----------------------------------------
     Gross profit                                                                             6,666                3,459
                                                                                    -----------------------------------------
Operating expenses:
   Research and development expenses, net                                                       994                1,407
   Selling and marketing expenses                                                             3,782                5,380
   General and administrative expenses                                                        1,497                  892
   Amortization of deferred Stock-based compensation (1)                                        101                  150
                                                                                    -----------------------------------------
     Total operating expenses                                                                 6,374                7,829
                                                                                    -----------------------------------------
     Operating income (loss)                                                                    292               (4,370)
Interest and other income, net                                                                   39                  192
                                                                                    -----------------------------------------
     Net income (loss)                                                                   $      331           $   (4,178)
                                                                                    -----------------------------------------
Basic and diluted earnings (loss) per share                                              $     0.01           $    (0.16)
                                                                                    -----------------------------------------
Shares used in computing basic and diluted earnings (loss) per share                     25,632,149           25,105,598
                                                                                    -----------------------------------------

(1) Amortization of deferred stock-based compensation would be further classified as follows:

                                                                                                SIX MONTHS ENDED
                                                                                                    JUNE 30,
                                                                                      --------------------------------------
                                                                                             2003                2002
                                                                                      --------------------------------------
Cost of revenues                                                                             $   7               $  10
Research and development expenses                                                               15                  22
Selling and marketing expenses                                                                   4                   6
General and administrative expenses                                                             75                 112
                                                                                      --------------------------------------

Total                                                                                        $ 101               $ 150
                                                                                      --------------------------------------


               The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

                                                              -3-
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<TABLE>
<CAPTION>

                                                CLICKSOFTWARE TECHNOLOGIES LTD.
                                        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (IN THOUSANDS)
                                                          (UNAUDITED)

                                                                                                SIX MONTHS ENDED
                                                                                                    JUNE 30,
                                                                                    -----------------------------------------
                                                                                            2003                2002
                                                                                    -----------------------------------------
<S>                                                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                            331             $(4,178)

Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities Expenses not affecting operating cash flows:
   Depreciation                                                                              239                 406
   Amortization of deferred compensation                                                     101                 150
   Unrealized (gain)loss  from investments                                                    11                 104
   Severance pay, net                                                                          9                 (48)
Changes in operating assets and liabilities:
   Trade receivables                                                                       1,270               2,264
   Other receivables and  prepaid expenses                                                  (268)                (58)
   Accounts payable and accrued expenses                                                    (906)                312
   Changes in investments, net                                                                --              (2,365)
   Deferred revenues                                                                         954                 392
                                                                                    -----------------------------------------
Net cash provided by (used in) operating activities                                        1,741              (3,021)
                                                                                    -----------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of investments                                                                (1,205)                 --
   Purchases of equipment                                                                    (24)               (231)
                                                                                    -----------------------------------------
Net cash used in investing activities                                                     (1,229)               (231)
                                                                                    -----------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term debt, net                                                                      (17)               (107)
   Repayments of long-term debt                                                               --                 (21)
   Employee options exercised and employees stock purchase plan shares purchased              15                  44
                                                                                    -----------------------------------------
Net cash used in financing activities                                                         (2)                (84)
                                                                                    -----------------------------------------
Increase (decrease) in cash and cash equivalents                                             510              (3,336)
Cash and cash equivalents at beginning of period                                           3,400               8,125
                                                                                    -----------------------------------------
Cash and cash equivalents at end of period                                                 3,910               4,789
                                                                                    =========================================

Supplemental cash flow information:
Cash paid for interest                                                                         8                   5
                                                                                    =========================================


               The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

                                                              -4-
<PAGE>

                         CLICKSOFTWARE TECHNOLOGIES LTD.

            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     (INFORMATION AS OF JUNE 30, 2003 AND FOR THE THREE AND SIX MONTHS ENDED
                        JUNE 30, 2003 AND JUNE 30, 2002)
               (IN THOUSANDS, EXCEPT SHARE DATA AND SHARE NUMBERS)

1.   BASIS OF PRESENTATION

     The accompanying condensed unaudited interim consolidated financial
     statements have been prepared by ClickSoftware Technologies Ltd.
     ("ClickSoftware" or the "Company") in accordance with accounting principles
     generally accepted in the United States of America for interim financial
     information and the instructions to Form 10-Q and Article 10 of Regulation
     S-X. These financial statements reflect all adjustments, consisting of
     normal recurring adjustments and accruals, which are, in the opinion of
     management, necessary for a fair presentation of the financial position of
     the Company as of June 30, 2003 and the results of operations and cash
     flows for the interim periods indicated in conformity with generally
     accepted accounting principles applicable to interim periods. Accordingly,
     certain information and footnote disclosures normally included in annual
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted. These financial
     statements should be read in conjunction with the audited financial
     statements and notes thereto of ClickSoftware for the year ended December
     31, 2002 that are included in ClickSoftware's Form 10-K filed with the
     Securities and Exchange Commission on March 24, 2003. The results of
     operations presented are not necessarily indicative of the results to be
     expected for future quarters or for the year ending December 31, 2003. The
     balance sheet at December 31, 2002 has been derived from the audited
     financial statements as of and for the year ended December 31, 2002, but
     does not include all the information and footnotes required by generally
     accepted accounting principles for annual financial statements.

2.   RESTATEMENT

     During the third quarter of 2002, the Company's audit committee, with the
     assistance of outside advisors, conducted a review of its financial
     statements for 2000 and 2001 and for the first six months of 2002. On
     October 21, 2002, the Company announced that it would restate its financial
     statements for 2000 and 2001 and for the first six months of 2002. The
     restatement resulted primarily from the recognition of revenue from sales
     to reseller customers and other customers, where revenue had been
     recognized prematurely or should not have been recognized at all.

     Following the re-audit of the Company's financial statements, the Company
     restated its financial statements for the announced periods and for the
     year ended December 31, 1999 and filed on January 24, 2003 an amendment to
     the 10-K for the year ended December 31, 2001 (the "2001 10-K/A").

     The restatement is further discussed in note 3 of the notes to the
     consolidated financial statements of the Company that are included in the
     2001 10-K/A.

3.   REVENUE RECOGNITION

     The Company recognizes revenues in accordance with the American Institute
     of Certified Public Accountants ("AICPA") Statement of Position 97-2,
     Software Revenue Recognition, as amended.

                                      -5-
<PAGE>

     In accordance with SOP 97-2, revenues from software license fees are
     recognized when persuasive evidence of an arrangement exists, the software
     product covered by written agreement or a purchase order signed by the
     customer has been delivered, the license fees are fixed and determinable
     and collection of the license fees is considered probable. Revenues from
     software product license agreements that require significant customization
     and modification of the software product are deferred and recognized using
     the percentage-of-completion method of contract accounting in accordance
     with AICPA Statement of Position 81-1. When software arrangements involve
     multiple elements, the Company allocates revenue to each element based on
     the relative fair values of the elements. The Company's determination of
     fair value of each element in multiple element arrangements is based on
     vendor-specific objective evidence (VSOE). The Company limits its
     assessment of VSOE for each element to the price charged when the same
     element is sold separately. If VSOE of fair value does not exist for all
     elements to support the allocation of the total fee among all delivered and
     undelivered elements of the arrangement, revenue is deferred until such
     evidence exists for the undelivered elements, or until all elements are
     delivered, whichever occurs earlier.

     If the fee due from the customer is not fixed or determinable, revenue is
     recognized as payments become due from the customer, assuming all other
     revenue recognition criteria have been met. Generally, the Company
     considers all arrangements with extended payment terms greater than nine
     months not to be fixed or determinable.

     The Company also enters into license arrangements with resellers whereby
     revenues are recognized upon sale through to the end user by the reseller.

     Service revenues include consulting services, post-contract customer
     support and training. Consulting revenues are generally recognized on a
     timely and material basis. However, revenues from certain fixed-price
     contracts are recognized on the percentage of completion basis.
     Post-contract customer support agreements provide technical support and the
     right to unspecified updates on an if-and-when-available basis.
     Post-contract customer support revenues are recognized ratably over the
     term of the support period (generally one year) and training and other
     service revenues are recognized as the related services are provided.

4.   STOCK-BASED COMPENSATION

     The Company accounts for employee stock-based compensation in accordance
     with Accounting Principles Board Opinion No. 25, "Accounting for Stock
     Issued to Employees" and in accordance with FASB Interpretation No. 44.
     Pursuant to these accounting pronouncements, the Company records
     compensation for stock options granted to employees over the vesting period
     of the options based on the difference, if any, between the exercise price
     of the options and the market price of the underlying shares at that date.
     Deferred compensation is amortized to compensation expense over the vesting
     period of the options. See below for pro forma disclosures required in
     accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", as
     amended by SFAS 148.

     Had stock-based compensation been measured under the alternative fair value
     accounting method provided for under SFAS No. 123, "Accounting for
     Stock-Based Compensation", as amended by SFAS 148, the Company's net loss
     and basic and diluted net loss per share would have increased or decreased
     to the following pro-forma amounts:

                                      -6-
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<TABLE>
<CAPTION>

                                                     -----------------------------------------------------------------
                                                            THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                 JUNE 30                         JUNE 30
                                                     -----------------------------------------------------------------
                                                           2003            2002            2003            2002
                                                     -----------------------------------------------------------------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                     -----------------------------------------------------------------
<S>                                                      <C>             <C>             <C>             <C>
     Net Income (loss)
As reported                                              $     173       $  (1,828)      $     331       $  (4,178)
     Add - stock based compensation  determined under
     SFAS 123                                                   26              75             101             150
     Deduct  - stock  based  compensation  determined
     under SFAS 123                                           (115)           (133)           (197)           (266)
     Pro-forma                                           $      84       $  (1,886)      $     235       $  (4,294)

Basic and diluted net loss per Share
         As reported                                     $    0.01       $   (0.07)      $    0.01       $   (0.16)
         Pro-forma                                       $    0.00       $   (0.07)      $    0.01       $   (0.17)
</TABLE>

        Under SFAS 123, the fair market value of each option grant is estimated
        on the date of grant using the "Black-Scholes Option Pricing" method
        with the following weighted-average assumptions: (1) expected life of 5
        years ;(2) dividend yield of 0%; (3) expected volatility of 149%; and
        (4) risk-free interest rate of 4%.

5.      BASIC AND DILUTED NET LOSS PER SHARE

        Basic and diluted net loss per share are presented in conformity with
        SFAS No. 128 "Earnings per Share" for all years presented. Basic and
        diluted net loss per share have been computed using the weighted-average
        number of ordinary shares outstanding during the year.

        All outstanding share options and shares issued and reserved for
        outstanding share options have been excluded from the calculation of
        basic and diluted net loss per share because all such securities are
        anti-dilutive for all periods presented. The total number of shares
        excluded from the calculations of basic and diluted net income (loss)
        per share were 3,892,993 and 4,083,833 for the three and six months
        ended June 30, 2003 and June 30, 2002, respectively.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        This report contains certain forward-looking statements (as such term is
        defined in Section 27A of the Securities Act of 1933 and Section 21E of
        the Securities Exchange Act of 1934) and information relating to us that
        are based on the beliefs of our management as well as assumptions made
        by and information currently available to our management, including
        statements related to products, markets, and future results of
        operations and profitability, and may include implied statements
        concerning market acceptance of our products, and our growing leadership
        role in the marketplace. In addition, when used in this report, the
        words "likely," "will," "suggests," "may," "would," "could,"
        "anticipate," "believe," "estimate," "expect," "intend," "plan,
        "predict" and similar expressions and their variants, as they relate to
        us or our management, may identify forward-looking statements. Such
        statements reflect our judgment as of the date of this quarterly report
        on Form 10-Q with respect to future events, the outcome of which is
        subject to certain risks, including the risk factors set forth herein
        which may have a significant impact on our business, operating results
        or financial condition. Investors are cautioned that these
        forward-looking statements are inherently uncertain. Should one or more
        of these risks or uncertainties materialize, or should underlying
        assumptions prove incorrect, actual results or outcomes may vary
        materially from those described herein. We undertake no

                                      -7-
<PAGE>

obligation to update forward-looking statements, whether as a result of new
information, future events or otherwise.

                                    OVERVIEW

     Since late 1996, we have focused on providing service optimization software
products based on our W-6 Service Scheduler and TechMate technologies. We have
also invested significant resources in developing products based on these
technologies including, until 2001, increasing the number of our employees
involved in research and development, selling and marketing, and professional
services. During 2001 and 2002 the number of our employees decreased due to cost
cutting measures.

     We believe that in today's economy successful businesses must constantly
increase the performance of existing service resources. Our products emphasize
the use of optimization tools for performance enhancement in the service
environment. Accordingly, in September 1999, we began marketing our product
lines under new names, CLICKSCHEDULE and CLICKFIX and in May 2000, we changed
our company name to ClickSoftware Technologies Ltd. Currently our product
offering for service optimization applications includes: CLICKSCHEDULE(TM),
CLICKFIX(TM), CLICKANALYZE(TM), CLICKPLAN(TM), CLICKMOBILE(TM), and
CLICKFORECAST(TM).

     In the fourth quarter of 2002, in light of continued worldwide economic
recession and ongoing reductions in investments in corporate capital
expenditures, we initiated a reorganization plan aimed at reducing our operating
expenses. As part of the plan, we reduced our workforce by approximately 40
employees, implemented an across-the-board salary reduction, closed our office
in Campbell, California and moved our North American headquarters to Burlington,
Massachusetts. As a result of this plan, we recorded in the fourth quarter of
2002 restructuring costs and asset impairment in the amount of approximately
$2.7 million. (See also note 4 of the notes to our consolidated financial
statements for the year ended December 31, 2002 in "Item 8. Financial
Statements".)

     We derive revenues from software licensing and services. Our operating
history shows that a significant percentage of our quarterly revenues results
from orders placed toward the end of a quarter. Software license revenues are
comprised of perpetual software license fees primarily derived from contracts
with our direct sales clients and our indirect distribution channels. We
recognize revenues in accordance with the AICPA Statement of Position 97-2,
"SOFTWARE REVENUE RECOGNITION," or SOP 97-2, as amended (See note 3 of the notes
to our interim consolidated financial statements).

     Service revenues are comprised of revenues from consulting, training, and
post-contract customer support. Consulting services are billed at an agreed-upon
rate plus incurred expenses. Clients licensing our products generally purchase
consulting agreements from us. Post-contract customer support arrangements
provide technical support and the right to unspecified upgrades on an if-and
when-available basis. Post-contract customer support revenues are charged as a
percentage of license fees depending upon the level of support coverage
requested by the customer. Our products are marketed worldwide through a
combination of our direct sales force, third-party consultants and various
marketing and distribution relationships we have with implementation and
technology companies and resellers.

     Cost of revenues consists of cost of software license revenues and cost of
services. Cost of software license revenues consists of expenses related to
media duplication and packaging of our products, costs of software purchased or
licensed for resale and royalties payments to the Chief Scientist. Cost of
services consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
and equipment costs and royalty payments to the Office of the Chief Scientist of
the Ministry of Industry and Trade of the State of Israel (the "Chief
Scientist") pursuant to grant agreements

                                      -8-
<PAGE>

whereby the Company is committed to pay royalties at a rate of 3% to 5% of sales
of the developed product, up to 100%-150% of the amount of grants received with
annual interest of LIBOR as of the date of approval for programs approved from
1999 and thereafter.

     Operating expenses are categorized into research and development expenses,
sales and marketing expenses, general and administrative expenses and
stock-based compensation.

     Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties, as described above, which are included in cost of revenues. Software
research and development costs incurred prior to the establishment of technology
feasibility are included in research and development expenses as incurred.

     Selling and marketing expenses consist primarily of personnel and related
costs for marketing and sales functions, including related travel, direct
advertising costs, expenditures on trade shows, market research and promotional
printing.

     General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including information services, finance,
accounting, human resources, facilities, legal and other costs related to
running a public company.

     Amortization of stock-based compensation represents the aggregate
difference, at the date of grant, between the respective exercise price of stock
options and the deemed fair market value of the underlying stock. Deferred
stock-based compensation is amortized over the vesting period of the underlying
options, generally four years.

     Interest and other income (expenses) include interest income earned on
cash, cash equivalents and short-term investments, offset by interest expense,
and also includes the effects of foreign currency translations.

     The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses is incurred
in British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates, which are influenced by
various global economic factors.

     The effects of foreign currency exchange rates on our results of operations
for the three and six months ended June 31, 2003 and 2002 were immaterial.

     Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on
our U.S. income, the U.K. statutory tax rate on our U.K. income, the Belgium
statutory tax rate on our Belgium income, the German statutory tax rate on our
German income, the Australian tax rate on our Australian income and the Israeli
tax rate discussed below.

     Israeli companies are generally subject to income 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, and is eligible therefore for
tax benefits. As a result of these benefits, we will have a tax exemption on
income derived during the first two years in which this investment program
produces taxable income and a reduced tax rate of 15-25% for the next 5 to 8
years. In the event of a distribution of a cash dividend out of retained
earnings that were exempt

                                      -9-
<PAGE>

from tax due to our Approved Enterprise status, we would be required to pay 25%
corporate income tax on income from which the dividend was distributed. 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.

                          CRITICAL ACCOUNTING POLICIES

     This discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We evaluate these estimates on an on-going basis. We base our
estimates on our historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates form the basis
for making judgments about the carrying amount values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

     Our recognition of revenue requires judgments and estimates that may
significantly impact our consolidated financial statements.

     Revenue results are difficult to predict, and any shortfall in revenues or
delay in recognizing revenues could cause our operating results to vary
significantly from quarter to quarter and could result in future operating
losses. In addition, the timing of our revenue recognition influences the timing
of certain expenses, such as commissions and royalties. We follow very specific
and detailed guidelines in measuring revenues, however, certain judgments affect
the application of our revenue policy.

     Our revenues are principally derived from the licensing of our software and
the provision of related services. We recognize revenues in accordance with SOP
97-2. Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, either by written agreement or a purchase
order signed by the customer, the software product has been delivered, the
license fees are fixed and determinable, and collection of the license fees is
considered probable. License fees from software arrangements that involve
multiple elements, such as post-contract customer support, consulting and
training, are allocated to each element of the arrangement based on the relative
fair values of the elements. We determine the fair value of each element in
multiple-element arrangements based on vendor specific objective evidence, or
VSOE. We determine the VSOE for each element according to the price charged when
the element is sold separately. In judging the probability of collection of
software license fees we continuously monitor collection and payments from our
customers and maintain a provision for estimated credit losses based upon our
historical experience and any specific customer collection issues that we have
identified. In connection with customers with whom we have no previous
experience, we may utilize independent resources to evaluate the
creditworthiness of those customers. For some customers, typically those with
whom we have long-term relationships, we may grant extended payment terms. We
perform on-going credit evaluations of our customers. If the financial situation
of any of our customers were to deteriorate, resulting in an impairment of their
ability to pay amounts owed to us, additional allowances may be required.

     Our software products generally do not require significant customization or
modification. However, when such customization or modification is necessary, the
revenue generated by those activities is deferred and recognized using the
percentage of completion method.

     Service revenues include post-contract customer support, consulting and
training. Post-contract customer support arrangements provide for technical
support and the right to unspecified updates on an if-

                                      -10-
<PAGE>

and-when-available basis. Revenues from those arrangements are recognized
ratably over the term of the arrangement, usually one year. Revenues from
consulting services are recognized on a time and material basis as the services
are provided or, in a fixed price contract, on a percentage of completion basis.
Revenues from training are recognized as the services are provided.

     In recognizing revenues based on the rate of completion method, we estimate
time to completion with revisions to estimates made in the period in which the
basis of such revisions becomes known. If we do not accurately estimate the
resources required or scope of work to be performed, manage our projects
properly within the planned periods of time or satisfy our obligations under the
contracts, then future services margins may be significantly and negatively
affected or losses on existing contracts may need to be recognized.

                        RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities."
FIN 46 requires an investor with a majority of the variable interests (primary
beneficiary) in a variable interest entity (VIE) to consolidate the entity and
also requires majority and significant variable interest investors to provide
certain disclosures. A VIE is an entity in which the voting equity investors do
not have a controlling interest, or the equity investment at risk is
insufficient to finance the entity's activities without receiving additional
subordinated financial support from other parties. For arrangements entered into
with VIEs created prior to January 31, 2003, the provisions of FIN 46 are
required to be adopted at the beginning of the first interim or annual period
beginning after June 15, 2003. The provisions of FIN 46 were effective
immediately for all arrangements entered into with new VIEs created after
January 31, 2003. The Company is currently considering the effect, if any, of
this Interpretation on its financial statements.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. In particular, this Statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative. It also clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. SFAS No. 149 is
generally effective for contracts entered into or modified after June 30, 2003
and is not expected to have an impact on the Company's financial statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify certain financial instruments as a liability
(or as an asset in some circumstances). SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have an impact on the Company's
financial statements.

                                      -11-
<PAGE>
<TABLE>
<CAPTION>

                                                     RESULTS OF OPERATIONS

                           Our operating results, expressed as a percentage of revenues, for each of
                          the three and six-month periods ended June 30, 2003 and 2002 are as follows:


                                                      ------------------------------------------------------------------------
                                                              THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                                    JUNE 30                            JUNE 30
                                                      ------------------------------------------------------------------------
                                                             2003             2002              2003              2002
                                                      ------------------------------------------------------------------------
<S>                                                         <C>               <C>              <C>               <C>
Revenues:
   Software license                                           46%               39%              45%               36%
   Services                                                   54%               61%              55%               64%
                                                      ------------------------------------------------------------------------
     Total revenues                                          100%              100%             100%              100%
Cost of revenues:
   Software license                                            6%                8%               4%                5%
   Services                                                   28%               41%              31%               43%
     Total cost of revenues                                   34%               49%              35%               48%
                                                      ------------------------------------------------------------------------
   Gross profit                                               66%               51%              65%               52%
                                                      ------------------------------------------------------------------------
Operating expenses:
   Research and development expenses, net                     10%               17%              10%               21%
   Selling and marketing expenses                             36%               78%              37%               82%
   General and administrative expenses                        15%               12%              15%               14%
   Reorganization expenses                                    --                --               --                --
   Amortization of deferred Stock-based compensation           1%                2%               1%                2%
                                                      ------------------------------------------------------------------------
     Total operating expenses                                 62%              109%              63%              119%
                                                      ------------------------------------------------------------------------
     Operating income (loss)                                   4%              (58%)              2%              (67%)
        Interest and other income(expenses), net              (1%)               5%               1%                3%
                                                      ------------------------------------------------------------------------
     Net income (loss)                                         3%              (53%)              3%              (64%)
                                                      ========================================================================
</TABLE>

       RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2003 AND 2002

     REVENUES: Company revenues increased $1.6 million or 46% to $5.1 million
for the three months ended June 30, 2003 from $3.5 million for the three months
ended June 30, 2002. This increase in revenues was the result of increased
demand for our products and services, particularly in the computer and office
equipment and utilities and energy industries. For the three months ended June
30, 2003, 44% of our revenues were generated in North America, 45% in Europe,
10% in Asia Pacific and Africa and 1% in Israel. For the three months ended June
30, 2002, 62% of our revenues were generated in North America, 20% in Europe,
17% in Asia Pacific and Africa and 1% in Israel.

     SOFTWARE LICENSE REVENUES: Software license revenues increased $0.9 million
or 70% to $2.3 million for the three months ended June 30, 2003 from $1.4
million for the three months ended June 30, 2002. Software license revenues were
$2.3 million or 46% of total revenues for the three months ended June 30, 2003,
and $1.4 million or 39% of total revenues for the three months ended June 30,
2002. The increase in software license revenues by $0.9 million or 70% from the
three months ended June 30, 2002 resulted from a mixture of new and follow-on
orders.

     SERVICES: Services revenues were $2.7 million or 54% of revenues for the
three months ended June 30, 2003, and $2.1 million or 61% of total revenue in
the three months ended June 30, 2002. The increase in services revenues by $0.6
million or 31% from the three months ended June 30, 2002 was

                                      -12-
<PAGE>

primarily due to the increase in the number of customers under annual support
agreements as well an increase in professional services fees during the second
quarter of 2003.

     COST OF REVENUES: Cost of revenues were $1.7 million or 34% of revenues for
the three months ended June 30, 2003, and $1.7 million or 49% of revenues for
the three months ended June 30, 2002. The marginal increase in the cost of
revenues by $42,000 from the three months ended March 31, 2002 on an absolute
basis was primarily due to higher costs associated with professional services
performed by the Company and an increase in royalties paid by the Company to the
Chief Scientist Office.

     COST OF SOFTWARE LICENSES: Cost of software licenses was $305,000 or 6% of
revenues for the three months ended June 30, 2003 and $281,000 or 8% of revenues
in the three months ended June 30, 2002. The marginal increase in the cost of
software licenses on an absolute basis was due to an increase in royalties paid
by the Company to the Chief Scientist Office and an increase in new third
parties' licenses sold by the Company in the second quarter of 2003.

     COST OF SERVICES: Cost of services revenues was $1.4 million or 28% of
revenues for the three months ended June 30, 2003, and $1.4 million or 41% of
revenues for the three months ended June 30, 2002.

     GROSS PROFIT: Gross profit was $3.3 million, or 66% of revenues for the
three months ended June 30, 2003 and $1.8 million, or 51% of revenues for the
three months ended June 30, 2002. The increase in gross profit by $1.5 million
or 88% was primarily due to an increase in total revenues. The increase in gross
profit as a percentage of revenues was primarily the result of an increase in
higher margin license revenues and improvement in the profitability of our
professional services.

     OPERATING EXPENSES: Total operating expenses were $3.1 million or 62% of
revenues for the three months ended June 30, 2003, and $3.8 million or 109% of
revenues for the three months ended June 30, 2002. The decrease in operating
expenses by $0.7 million or 17% from the three months ended June 30, 2002 was
primarily due to cost cutting measures implemented during the fourth quarter of
2002. Our total number of employees decreased from 152 at June 30, 2002 to 119
at June 30, 2003.

     RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses,
net of related grants, were $508,000 or 10% of revenues for the three months
ended June 30, 2003, and $590,000 or 17% of revenues for the three months ended
June 30, 2002. The decrease in research and development expenses by $0.1 million
or 14% from the three months ended June 30, 2002 is primarily due to the impact
of cost cutting measures implemented during the fourth quarter of 2002.

     SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $1.8
million or 36% of revenues for the three months ended June 30, 2003, and $2.7
million or 78% of revenues for the three months ended June 30, 2002. The
decrease in selling and marketing expenses by $0.9 million or 33% from the three
months ended June 30, 2002 was primarily due to cost cutting measures
implemented during the fourth quarter of 2002.

     GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
were $767,000 or 15% of revenues for the three months ended June 30, 2003, and
$403,000 or 12% of revenues for the three months ended June 30, 2002. The
increase in general and administrative expenses by $0.4 million or 90% from the
three months ended June 30, 2002 was due primarily to increase in bad debts,
legal and consultancy and payroll expenses.

     AMORTIZATION OF STOCK-BASED COMPENSATION: Stock-based compensation expenses
were $26,000 for the three months ended June 30, 2003 and $75,000 for the three
months ended June 30, 2002.

                                      -13-
<PAGE>

        RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2003 AND 2002

     REVENUES: Company revenues increased $3.6 million or 55% to $10.2 million
for the six months ended June 30, 2003 from $6.6 million for the six months
ended June 30, 2002. This increase in revenues was the result of increased
demand for our products and services, particularly in the computer and office
equipment and utilities and energy industries . For the six months ended June
30, 2003, 43% of our revenues were generated in North America, 44% in Europe,
12% in Asia Pacific and Africa and 1% in Israel. For the six months ended June
30, 2002, 59% of our revenues were generated in North America, 26% in Europe,
13% in Asia Pacific and Africa and 2% in Israel.

     SOFTWARE LICENSE REVENUES: Software license revenues increased $2.2 million
or 92% to $4.6 million for the six months ended June 30, 2003 from $2.4 million
for the six months ended June 30, 2002. Software license revenues were $4.6
million or 45% of total revenues for the six months ended June 30, 2003, and
$2.4 million or 36% of total revenues for the six months ended June 30, 2002.
The increase in software license revenues by $2.2 million or 92% from the six
months ended June 30, 2002 was primarily the result of repeat orders

     SERVICES: Services revenues were $5.6 million or 55% of revenues for the
six months ended June 30, 2003, and $4.2 million or 64% of total revenue in the
six months ended June 30, 2002. The increase in services revenues by $1.4
million or 35% from the six months ended June 30, 2002 resulted from an increase
in project-based professional services and an increase in number of customers
under annual support agreements.

     COST OF REVENUES: Cost of revenues were $3.5 million or 35% of revenues for
the six months ended June 30, 2003, and $3.1 million or 48% of revenues for the
six months ended June 30, 2002. The increase in the cost of revenues by $0.4
million or 14% from the six months ended June 30, 2002 on an absolute basis was
primarily due to higher costs associated with professional services performed by
the Company and an increase in royalties paid to the Chief Scientist.

     COST OF SOFTWARE LICENSES: Cost of software licenses was $436,000 or 4% of
revenues for the six months ended June 30, 2003 and $317,000 or 5% of revenues
in the six months ended June 30, 2002. The increase in the cost of software
licenses on absolute basis was primarily due to an increase in royalties paid to
the Chief Scientist.

     COST OF SERVICES: Cost of services revenues was $3.1 million or 31% of
revenues for the six months ended June 30, 2003, and $2.8 million or 43% of
revenues for the six months ended June 30, 2002. The increase in the cost of
services by $0.3 million or 11% from the six months ended June 30, 2002 on an
absolute basis was primarily due to the increased demand for our professional
services and an increase in royalties paid to the Chief Scientist.

     GROSS PROFIT: Gross profit was $6.7 million, or 65% of revenues for the six
months ended June 30, 2003 and $3.5 million, or 52% of revenues for the six
months ended June 30, 2002. The increase in the gross profit by $3.2 million or
93% was primarily due to an increase in total revenues. The increase in gross
profit as a percentage of revenues was the result of an increase in higher
margin license revenues and improvement in the profitability of our professional
services.

     OPERATING EXPENSES: Total operating expenses were $6.4 million or 63% of
revenues for the six months ended June 30, 2003, and $7.8 million or 119% of
revenues for the six months ended June 30, 2002. The decrease in operating
expenses by $1.4 million or 19% from the six months ended June 30, 2002 was

                                      -14-
<PAGE>

primarily due to cost cutting measures implemented during 2002. Our total number
of employees, who are the primary source of our operating expenses, decreased
from 152 at June 30, 2002 to 119 at June 30, 2003.

     RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses,
net of related grants, were $994,000 or 10% of revenues for the six months ended
June 30, 2003, and $1.4 million or 21% of revenues for the six months ended June
30, 2002. The decrease in research and development expenses by $0.4 million or
29% from the six months ended June 30, 2002 is primarily due to the impact of
cost cutting measures implemented during 2002.

     SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $3.8
million or 37% of revenues for the six months ended June 30, 2003, and $5.4
million or 82% of revenues for the six months ended June 30, 2002. The decrease
in selling and marketing expenses by $1.6 million or 30% from the six months
ended June 30, 2002 was primarily due to cost cutting measures implemented
during 2002.

     GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
were $1.5 million or 15% of revenues for the six months ended June 30, 2003, and
$892,000 or 14% of revenues for the six months ended June 30, 2002. The increase
in general and administrative expenses by $0.6 million or 68% from the six
months ended June 30, 2002 was due primarily to increase in bad debts, legal and
consultancy and payroll expenses.

     AMORTIZATION OF STOCK-BASED COMPENSATION: Stock-based compensation expenses
were $101,000 for the six months ended June 30, 2003 and $150,000 for the six
months ended June 30, 2002.

                         LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2003 we had cash and cash equivalents of $3.9 million,
short-term investments of $4.1 million and long-term investments of $0.3 million
for a total of $8.3 million.

     From inception until our IPO in June 2000, we financed our operations
primarily through the private placement of equity securities, which through
December 31, 1999 totaled approximately $32.0 million, net of issuance costs.
Our initial public stock offering of ordinary shares realized $28.3 million, net
of underwriter discount and other issuance costs.

     For the six months ended June 30, 2003, cash provided by operations was
$1.7 million, comprised of our net income of $0.3 million, a decrease in trade
receivables of $1.3 million, an increase in other receivables of $0.3 million, a
decrease in accounts payable of $0.9 million, an increase in deferred revenue of
$1.0 million and non-cash charges of $0.4 million. For the six months ended June
30, 2002, cash used in operations was $3.0 million, comprised of our net loss of
$4.2 million, a decrease in trade receivables of $2.3 million, an increase in
accounts payable of $0.3 million, an increase in deferred revenue of $0.4
million, partially offset by non-cash charges of $0.6 million and an increase in
short term investments of $2.4 million.

     Net cash used in investing activities for the six months ended June 30,
2003 was $1.2 million of which $1.2 million was primarily invested in bank
deposits and Short term Bonds and $24,000 was invested in purchases of computer
equipment. Net cash used in investing activities for the six months ended June
30, 2002 was $231,000 and was invested primarily in leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture.

     As of June 30, 2003 we had outstanding trade receivables of approximately
$2.8 million, which represented approximately 55% of revenues for the three
months ended June 30, 2003. Our trade receivables typically have 30 to 60 day
terms, although we have also negotiated longer payment plans with some of our

                                      -15-
<PAGE>

clients. For the three months ended June 30, 2003 our DSO (Day Sales
Outstanding) was 49 days, an increase of 6 days from 43 for the three months
ended March 31, 2003.

     We have entered into standby letters of credit agreements with banks
primarily relating to the guarantee of future performance on certain contracts
and office lease payments. As of June 30, 2003, contingent liabilities on
outstanding letters of credit agreements aggregated approximately $3.0 million,
of which all but $394,000 are scheduled to expire during 2003. It is possible
that some of these letters of credit will be renewed following their expiration.
The letters of credit are secured by $3.3 million in deposits with the banks, to
cover any potential payments under the guarantees.

     Since inception, we have received aggregate payments from the Government of
the State of Israel through the Office of the Chief Scientist of the Ministry of
Industry and Trade in the amount of $6.6 million related to research and
development. In return for the Government of Israel participation, we are
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100%-150% of the amount of grants received with annual interest
of LIBOR as of the date of approval for programs approved from 1999 and
thereafter. As of June 30, 2003, we had paid or accrued royalties related to the
results of research and development in the amount of $2.7 million. The estimated
current net commitment is approximately $3.9 million. The refund of the grant is
contingent on future sales, and we have no obligation to refund these grants if
sufficient sales are not generated.

     Our capital requirements depend on numerous factors, including market
demand and acceptance of our products, the resources we devote to developing,
marketing, selling and supporting our products and the timing and extent of
establishing additional international operations. We intend to continue
investing significant resources in our selling and marketing and research and
development operations in the future. We attained profitability in the three
months period ending March 31, 2003 and maintained profitability in three months
period ending June 30, 2003. Our ability to maintain profitability using our
currently available balance of cash and cash equivalents will depend on our
ability to increase our revenues while continuing to control our expenses.
However, we cannot assure you that we will be able to maintain profitability,
particularly given the current economic conditions and potential reduction in
information technology spending by our current and prospective customers. If we
are not successful in doing so, we will be required to seek new external sources
of financing. If additional funds are raised through the issuance of equity or
debt securities, these securities could have rights, preferences and privileges
senior to those of holders of ordinary shares, and the terms of these securities
could impose restrictions on our operations. The sale of additional equity or
convertible debt securities could result in additional dilution to our
shareholders.

     We estimate that our revenues in the third quarter of 2003 will be between
$5.5 and $5.8 million, although actual revenues may differ. Assuming this level
of revenues for the third quarter is achieved, we believe that we will be able
to maintain profitability in the upcoming quarter and assuming we can maintain
the anticipated level of expenses, although no assurances can be made in that
regard. Also we will need to use cash during the second half of 2003 for certain
expenses recorded in 2002 in connection with our restructuring in the amount of
approximately $0.6 million. If we are able to maintain our quarterly revenues at
a level similar to that expected in the third quarter of 2003, we believe that
we will have sufficient cash to fund our operations for at least the next twelve
months although there is no assurance we will be able to do so.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

     You should carefully consider the following factors and other information
in this statement before you decide to invest in our ordinary shares. If any of
the negative events referred to below occur, our business, financial condition
and results of operations could suffer. In any such case, the trading price of
our ordinary shares could decline, and you may lose all or part of your
investment.

                                      -16-
<PAGE>

                          RISKS RELATED TO OUR BUSINESS

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO OBTAIN
FURTHER FINANCING IF REQUIRED.

     Our ability to maintain or increase profitability using our currently
available balance of cash and cash equivalents will depend on our ability to
increase our revenues while continuing to control our expenses. We cannot assure
you that we will be successful in doing so. If we are not successful in doing
so, particularly given current economic conditions and potential reductions in
information technology spending by our current and prospective customers, we
will need to raise additional capital to finance our operations. Under current
market conditions, we may not be able to do so by selling additional equity or
debt securities. If we are able to issue equity or debt securities, these
securities could have rights; preferences and privileges senior to those of
holders of ordinary shares, and the terms of these securities could impose
restrictions on our operations. The sale of additional equity or convertible
debt securities would result in additional dilution to the stock holdings of our
shareholders. Additionally, prior to the issuance of additional equity or
convertible debt securities to entities outside of Israel, we will need to
obtain approval from the Chief Scientist and there can be no assurance that we
will be able to obtain this consent in the future.

     Alternatively, we may seek other forms of financing, such as credit from
banks or institutional lenders. We cannot be certain that additional financing
will be available to us in amounts or on terms acceptable to us, if at all. If
we are unable to obtain this additional financing, we may be required to reduce
the scope of our planned product development and marketing efforts, which could
harm our business, financial condition or operating results. If the economy
continues to weaken or, for any other reason, we are unable to meet our business
goals, we may have to raise additional funds to respond to business
contingencies, which may include the need to:

     o    fund additional marketing expenditures;

     o    develop new or enhance existing products and services;

     o    enhance our operating infrastructure;

     o    respond to competitive pressures; or

     o    acquire complementary businesses or necessary technologies.

THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS
AND OUR RESULTS OF OPERATIONS.

     Current predictions for the general economy indicate uncertain economic
conditions. Weak economic conditions may cause a reduction in information
technology spending generally. Consequently, there may be an adverse impact on
the demand for our products, which would adversely affect our results of
operations. In addition, predictions regarding economic conditions have a low
degree of certainty, and further predicting the effects of the changing economy
is even more difficult. We may not accurately gauge the effect of the general
economy on our business. As a result, we may not react to such changing
conditions in a timely manner and this may result in an adverse impact on our
results of operations. Any such adverse impacts to our results of operations
from a changing economy may cause the price of our ordinary shares to decline.

                                      -17-
<PAGE>

WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY.

     We expect to continue to incur significant sales and marketing and research
and development expenses. Some of our expenses, such as administrative and
management payroll and rent and utilities, are fixed in the short term and
cannot be quickly reduced to respond to decreases in revenues. As a result, we
will need to generate significant revenues to maintain profitability, which we
may not be able to do.

WE FACE RISKS RELATING TO OUR FINANCIAL STATEMENTS RESTATEMENT.

     During the third quarter of 2002, our audit committee, with the assistance
of outside advisors, conducted a review of our financial statements for 2000 and
2001 and the first six months of 2002. On October 21, 2002, we announced that we
would restate our financial statements for 1999, 2000 and 2001 and the first six
months of 2002. In addition, we announced that our audit committee had decided
to recommend to our shareholders that we terminate our relationship with
Luboshitz Kasierer, formerly a member firm of Arthur Andersen, as our auditors
and appoint new auditors. At a shareholders' meeting held on December 31, 2002,
our shareholders authorized the engagement of Brightman Almagor & Co., a member
firm of Deloitte Touche Tohmatsu. Following the reaudit of our financial
statements, we restated our financial statements for the announced periods and
for the year ended December 31, 1999 and filed an amendment to the 10-K for the
three years ended 2001 on January 24, 2003.

     The restatement of our prior financial statements may lead to litigation
claims against us. The defense of claims may cause the diversion of management's
attention and resources, and we may be required to pay damages if any such
claims are not resolved in our favor. Any litigation, even if resolved in our
favor, could cause us to incur significant legal and other expenses. In this
regard, in December 2002, a lawsuit was filed against us and our current and
former officers in the United States District Court for the District of
Massachusetts asserting securities law claims on behalf of persons who purchased
our ordinary shares between June 22, 2000 and October 21, 2002. The complaint
was not served on any of the defendants, nor did the plaintiffs take any other
action in connection with the matter. On June 12, 2003, the case was dismissed
without prejudice for failure of the plaintiff to serve the complaint and/or
show good cause for its failure to do so. In addition, we have provided
information regarding our financial statement restatement to the staff of the
Securities and Exchange Commission on a voluntary basis, and the SEC has
requested additional information. Any additional inquiry by the SEC may result
in a diversion of our management's attention and resources and require
additional expenses for professional services. In addition, any claims against
us or any inquiry by the SEC may cause the price of our Ordinary Shares to
decline.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE.

     Our quarterly operating results are difficult to predict and are not a good
measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues comes from orders placed towards the end of
a quarter. From time to time, we are reliant upon a sale of significant size to
a single customer. A delay in the completion of any such sale past the end of a
particular quarter could negatively impact results for that quarter, and such
negative impact could be significant, Even without the delay of a significant
sale, our future quarterly operating results may fluctuate significantly and may
not meet the expectations of securities analysts or investors. If this occurs,
the price of our ordinary shares may decrease. The factors that may cause
fluctuations in our quarterly operating results include the following:

     o    the volume and timing of customer orders;

     o    internal budget constraints and approval processes of our current and
          prospective clients;

                                      -18-
<PAGE>

     o    The length and unpredictability of our sales cycle;

     o    the mix of revenue generated by product licenses and professional
          services;

     o    the mix of revenue between domestic and foreign sources;

     o    announcements or introductions of new products or product enhancements
          by us or our competitors;

     o    changes in prices of and the adoption of different pricing strategies
          for our products and those of our competitors;

     o    timing and amount of sales and marketing expenses;

     o    changes in our business and partner relationships;

     o    technical difficulties or "bugs" affecting the operation of our
          software;

     o    foreign currency exchange rate fluctuations; and

     o    general economic conditions.

FAILURE OF THE MARKET TO ACCEPT OUR PRODUCTS WOULD ADVERSELY AFFECT OUR
PROFITABILITY.

     Historically, all of our operating revenue has come from sales of, and
services related to, our ClickSchedule and ClickFix products and clients seeking
application software that enables efficient provisioning of services in
enterprise environments. During the year ended December 31, 2000, we introduced
three products that, together with our existing products, constitute a suite of
products that offers a more comprehensive solution to our customers. On November
28, 2001 we released version 7.0 of our Service Optimization Suite that utilizes
dynamic load balancing architecture, which dynamically redirects requests among
a group of ClickSoftware servers running our product applications. On October
2002 we added ClickForecast to our Service Optimization suite. This increases
the scalability of our products by enabling our customers to optimize additional
resources by adding hardware to this group of ClickSoftware servers. Our growth
depends in part on the development of market acceptance of these products. We
have no guarantee that the sales of these products will develop as quickly as we
anticipate, or at all. Lack of long-term demand for our new products would have
a material adverse effect on our business and operating results.

OUR SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL, WHICH
MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY SIGNIFICANTLY FROM
PERIOD TO PERIOD.

     To date, our customers have taken typically from three months to nine
months to evaluate our offering before making their purchase decisions. In
addition, depending on the nature and specific needs of a client, the
implementation of our products typically takes three to nine months. Sales of
licenses and implementation schedules are subject to a number of risks over
which we have little or no control, including clients' budgetary constraints,
clients' internal acceptance reviews, the success and continued internal support
of clients' own development efforts, the efforts of businesses with which we
have relationships, the nature, size and specific needs of a client and the
possibility of cancellation of projects by clients. The uncertain outcome of our
sales efforts and the length of our sales cycles could result in substantial
fluctuations in license revenues. Historically, a significant portion of our
sales in any given quarter occur in the last two weeks of the quarter; if sales
forecasted from a specific client for a particular quarter are not realized in

                                      -19-
<PAGE>

that quarter, we are unlikely to be able to generate revenues from alternate
sources in time to compensate for the shortfall. As a result, and due to the
relatively large size of some orders, a lost or delayed sale could have a
material adverse effect on our quarterly revenue and operating results.
Moreover, to the extent that significant sales occur earlier than expected,
revenue and operating results for subsequent quarters could be adversely
affected.

IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES.

     If, for any taxable year, either, (1) 75% or more of our gross income is
passive income or (2) 50% or more of the fair market value of our assets,
including cash (even if held as working capital), produce or are held to produce
passive income, we may be characterized as a "passive foreign investment
company" ("PFIC") for United States federal income tax purposes. Passive income
includes dividends, interest, royalties, rents annuities and the excess of gains
over losses from the disposition of assets, which produce passive income. For
purposes of the asset test, cash is considered to be an asset that produces
passive income. As a result of our cash position and the decline in the value of
our assets, there is a substantial risk that we are a PFIC for U.S. federal
income tax purposes.

     If we are characterized as a PFIC, our shareholders who are residents of
the United States will be subject to adverse United States tax consequences. Our
treatment as a PFIC could result in a reduction in the after-tax return to
shareholders resident in the United States and may cause a reduction in the
value of such shares.

     If we were to be treated as a PFIC, our shareholders will be required, in
certain circumstances, to pay an interest charge together with tax calculated at
maximum rates on certain "excess distributions" including any gain on the sale
of ordinary shares. In order to avoid this tax consequence, they (1) may be
permitted to make a "qualified electing fund" election (however the Company does
not currently intend to take the action necessary for our shareholders to make a
"qualified electing fund" election, in which case, in lieu of such treatment
they would be required to include in their taxable income certain undistributed
amounts of our income) or (2) may elect to mark-to-market the ordinary shares
and recognize ordinary income (or possible ordinary loss) each year with respect
to such investment and on the sale or other disposition of the ordinary shares.
Prospective investors should consult with their own tax advisors with respect to
the tax consequences applicable to them of investing in our ordinary shares.

WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
IMPAIRED.

     We believe our future success will depend on the continued service of our
executive officers and other key sales and marketing, product development and
professional services personnel. Dr. Moshe BenBassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. The
services of Dr. BenBassat and other members of our senior management team and
key personnel would be very difficult to replace and the loss of any of these
employees could harm our business significantly. We have employment agreements
with our executive officers, including Dr. BenBassat. Although these agreements
generally require sixty days notification prior to departure, relationships with
these officers and key employees are at will. The loss of any of our key
personnel could harm our ability to execute our business strategy and compete.

                                      -20-
<PAGE>

IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS.

     We cannot be certain that we can attract or retain a sufficient number of
highly qualified professional services personnel to meet our business needs.
Clients that license our software typically engage our professional services
organization to assist with the installation and operation of our software
applications. Our professional services organization also provides assistance to
our clients related to the maintenance, management and expansion of their
software systems. Future growth in licenses of our software will depend in part
on our ability to provide our clients with these services. In addition, we will
be required to expand our professional services organization to enable us to
continue to support our existing installed base of customers. If we were not
able to maintain our professional services organization, our ability to support
our service business would be limited.

IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED.

     In order for us to focus more effectively on our core business of
developing and licensing software solutions, we need to continue to establish
relationships with third parties that can provide implementation and
professional services to our clients. Third-party implementation and consulting
firms can also be influential in the choice of resource optimization
applications by new clients. If we are unable to establish and maintain
effective, long-term relationships with implementation and professional services
providers, or if these providers do not meet the needs or expectations of our
clients, we may be unable to grow our revenues and our business could suffer. As
a result of the limited resources and capacities of many third-party
implementation providers, we may be unable to attain sufficient focus and
resources from the third-party providers to meet all of our clients' needs, even
if we establish relationships with these third parties. If sufficient resources
are unavailable, we will be required to provide these services internally, which
could limit our ability to meet other demands. Even if we are successful in
developing relationships with third-party implementation and professional
services providers, we will be subject to significant risk, as we cannot control
the level and quality of service provided by third-party implementation and
professional services partners.

OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE.

     The market for our products is competitive and rapidly changing. We expect
competition to increase in the future as current competitors expand their
product offerings and new companies enter the market.

     Because the market for service and delivery optimization software is
evolving, it is difficult to determine what portion of the market each
competitor currently controls. However, competition could result in price
reductions, fewer customer orders, reduced gross margin and loss of market
share, any of which could cause our business to suffer. We may not be able to
compete successfully, and competitive pressures may harm our business. Some of
our current and potential competitors have greater name recognition, longer
operating histories, larger customer bases and significantly greater financial,
technical, marketing, public relations, sales, distribution and other resources
than us. In addition, some of our potential competitors are among the largest
and most well capitalized software companies in the world.

                                      -21-
<PAGE>

FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES, THEREBY DECREASING OUR REVENUES AND
INCREASING OUR SALES AND MARKETING COSTS.

     We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain business relationships with software
vendors, resellers, systems integrators, distribution partners and customers. If
we fail to continue developing these relationships, our growth could be limited.
We have entered into agreements with third parties relating to the integration
of our products with their product offerings, distribution, reselling and
consulting. We are currently deriving revenues from these agreements but we may
not be able to derive significant revenues in the future from these agreements.
In addition, our growth may be limited if prospective clients do not accept the
solutions offered by our strategic partners.

OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES.

     Our market is characterized by rapid technological change, dynamic client
needs and frequent introductions of new products and product enhancements. If we
fail to anticipate or respond adequately to technology developments and client
requirements, or if our product development or introduction is delayed, we may
have lower revenues. Client product requirements can change rapidly as a result
of computer hardware and software innovations or changes in and the emergence,
evolution and adoption of new industry standards. For example, we offer Windows
2000 versions of our products due to the market acceptance of Windows 2000 over
the last several years. While we interface smoothly with UNIX systems, we
currently do not provide UNIX versions of our software. The actual or
anticipated introduction of new products has resulted and will continue to
result in some reformulation of our product offerings. Technology and industry
standards can make existing products obsolete or unmarketable or result in
delays in the purchase of such products. As a result, the life cycles of our
products are difficult to estimate. We must respond to developments rapidly and
continue to make substantial product development investments. As is customary in
the software industry, we have previously experienced delays in introducing new
products and features, and we may experience such delays in the future that
could impair our revenue and operating results.

OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE.

     Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. In the past, some of our products have contained errors and defects
that have delayed implementation or required us to expend additional resources
to correct the problems. Despite internal testing, testing by current and
potential clients and the history of use by our installed base of customers, our
current and future products may contain as yet undetected serious defects or
errors. Any such defects or errors could result in lost revenues, liability or a
delay in market acceptance of these products, any of which would have a material
adverse effect on our business, operating results and financial condition.

     The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.

                                      -22-
<PAGE>

OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED.

     Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. However, we may not be able to
adequately protect our intellectual property rights, which may significantly
harm our business. Specifically, we may not be able to protect our trademarks
for our company name and our product names, and unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Policing
unauthorized use of our products and technology is difficult, particularly in
countries outside the U.S., and we cannot be certain that the steps we have
taken will prevent infringement or misappropriation of our intellectual property
rights.

     Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products, reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.

OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS.

     Substantial litigation regarding technology rights and other intellectual
property rights exists in the software industry both in terms of infringement
and ownership issues. A successful claim of patent, copyright or trademark
infringement or conflicting ownership rights against us could cause us to make
changes in our business or significantly harm our business. We believe that our
products do not infringe the intellectual property rights of third parties.
However, we cannot assure you that we will prevail in all future intellectual
property disputes.

     We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:

     o    be time-consuming to defend;

     o    result in costly litigation;

     o    divert management's attention and resources; or

     o    cause product shipment delays.

     Further, if an infringement or ownership claim is successfully brought
against us, we may have to pay damages or royalties, enter into a licensing
agreement, and/or stop selling the product or using the technology

                                      -23-
<PAGE>

at issue. Any such royalty or licensing agreements may not be available on
commercially reasonable terms, if at all.

     From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify some of our customers
against claims that our products infringe the intellectual property rights of
others. We have only conducted a partial search for existing patents and other
intellectual property registrations, and we cannot assure you that our products
do not infringe any issued patents. In addition, because patent applications in
the United States and Israel are not publicly disclosed until the patent is
issued, applications may have been filed which would relate to our products.

OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS.

     Significant portions of our operations occur outside the United States. Our
facilities are located in North America, Israel, the European continent, and the
United Kingdom, and our executive officers and other key employees are dispersed
throughout the world. This geographic dispersion requires significant management
resources that may place us at a disadvantage compared to our locally based
competitors. In addition, our international operations are generally subject to
a number of risks, including:

     o    foreign currency exchange rate fluctuations;

     o    longer sales cycles;

     o    multiple, conflicting and changing governmental laws and regulations;

     o    expenses associated with customizing products for foreign countries;

     o    protectionist laws and business practices that favor local
          competition;

     o    difficulties in collecting accounts receivable; and

     o    political and economic instability.

     We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.

WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL, WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS.

     We are incorporated under the laws of the State of Israel and our research
and development facilities as well as significant executive offices are located
in Israel. Although substantial portions of our sales currently are to customers
outside of Israel, political, economic and military conditions in Israel could
nevertheless directly affect our operations. Since the establishment of the
State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors and a state of hostility, varying in

                                      -24-
<PAGE>

degree and intensity, has led to security and economic problems for Israel.
Since September 2000, a continuous armed conflict with the Palestinian authority
has been taking place.

     Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Despite past progress towards peace between Israel and its
Arab neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies, which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.

CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS.

     David Schapiro, our Executive Vice President, Markets and Products, Hannan
Carmeli, our Executive Vice President, Product Services and Operations, and
Shmuel Arvatz, our Executive Vice President and Chief Financial Officer, as well
as other male employees located in Israel are currently obligated to perform up
to 39-45 days of annual reserve duty in the Israel Defense Forces and are
subject to being called for active military duty at any time. The loss or
extended absence of any of our officers and key personnel due to these
requirements could harm our business.

WE ARE AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE EXPANDING.
OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY NOT
BE ABLE TO FULLY MITIGATE THE RISK.

     Our revenue from the UK has grown both in absolute dollar basis as well as
a percentage of total revenues. We are expanding operations in other areas of
Europe, and income and expenses recognized in the European Community Euro will
increase. In 2002, 20% of our costs were incurred in GBP and 3% in the Euro. We
incur a portion of our expenses, principally salaries and related personnel
expenses in Israel, in NIS. In 2002, 25% of our costs were incurred in NIS. In
2002 we incurred 2% of our costs in the Australian Dollar. In addition to above,
we have balance sheet exposure related to foreign net assets. So far our risk to
foreign currency fluctuations has been minimal, but we cannot assure you that we
will be able to adequately protect ourselves against such risks.

WE ARE INCURRING ADDITIONAL COSTS AND DEVOTING MORE MANAGEMENT RESOURCES TO
COMPLY WITH INCREASING REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE.

     We are spending an increased amount of management time and external
resources to understand and comply with changing laws, regulations and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market rules.
Devoting the necessary resources to comply with evolving corporate governance
and public disclosure standards may result in increased general and
administrative expenses and a diversion of management time and attention to
compliance activities.

THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND
TAXES.

     We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel, and we may apply for additional grants in
the future.

                                      -25-
<PAGE>

We cannot assure that we will continue to receive grants at the same rate or at
all. The Chief Scientist budget has been subject to reductions that may affect
the availability of funds for Chief Scientist grants in the future. The
percentage of our research and development expenditures financed using grants
from the Chief Scientist may decline in the future, and the terms of such grants
may become less favorable. In connection with research and development grants
received from the Chief Scientist, we must make royalty payments to the Chief
Scientist on the revenues derived from the sale of products, technologies and
services developed with the grants from the Chief Scientist. From time to time,
the Government of Israel changes the rate of royalties we must pay, so we are
unable to accurately predict this rate. In addition, our ability to manufacture
products or transfer technology outside Israel without the approval of the Chief
Scientist is restricted under law. Any manufacture of products or transfer of
technology outside Israel will also require the Company to pay increased
royalties to the Chief Scientist up to 300%. We currently conduct all of our
manufacturing activities in Israel and intend to continue doing so in the
foreseeable future and therefore do not believe there will be any increase in
the amount of royalties we pay to the Chief Scientist. Currently the office of
the Chief Scientist does not consider the licensing of our software in the
ordinary course of business a transfer of technology and we do not intend to
transfer any technology outside of Israel. Consequently, we do not anticipate
having to pay increased royalties to the Chief Scientist for the foreseeable
future. In connection with our grant applications, we have made representations
and covenants to the Chief Scientist regarding our research and development
activities in Israel. The funding from the Chief Scientist is subject to the
accuracy of these representations and covenants. If we fail to comply with any
of these conditions, we could be required to refund payments previously received
together with interest and penalties and would likely be denied receipt of these
grants thereafter.

WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE DELAYED, REDUCED OR TERMINATED IN THE FUTURE.

     Pursuant to the Law for the Encouragement of Capital Investments, the
Government of the State of Israel through the Investment Center has granted
"Approved Enterprise" status to three of our existing capital investment
programs. Consequently, we are eligible for certain tax benefits for the first
several years in which we generate taxable income. We have not, however, begun
to generate taxable income for purposes of this law and we do not expect to
utilize these tax benefits for the near future. Once we begin to generate
taxable income, our financial condition could suffer if our tax benefits were
significantly reduced. The benefits available to an approved enterprise are
dependent upon the fulfillment of certain conditions and criteria. If we fail to
comply with these conditions and criteria, the tax benefits that we receive
could be partially or fully canceled and we could be forced to refund the amount
of the benefits we received, adjusted for inflation and interest. From time to
time, the Government of Israel has discussed reducing or limiting the benefits.
We cannot assess whether these benefits will be continued in the future at their
current levels or at all.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS.

     We are incorporated in Israel and maintain significant operations in
Israel. Some of our executive officers and directors and the Israeli accountants
named as experts in this statement reside outside of the United States and a
significant portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult for an investor, or
any other person or entity, to effect service of process on us or any of those
persons or to enforce a U.S. court judgment, based upon the civil liability
provisions of the U.S. federal securities laws, against us or any of those
persons, in an Israeli court. Additionally, it may be difficult for an investor,
or any other person or entity, to enforce civil liabilities under U.S. federal
securities laws in original actions instituted in Israel. We have appointed
ClickSoftware Inc., our

                                      -26-
<PAGE>

U.S. subsidiary, as our agent to receive service of process in any action
against us arising out of our original June 22, 2000 initial public offering. We
have not given our consent for our agent to accept service of process in
connection with any other claim. Furthermore, if a foreign judgment is enforced
by an Israeli court, it will be payable in NIS.

OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS.

     As of June 30, 2003, our executive officers, directors and entities
affiliated with them beneficially owned approximately 35.0% of our outstanding
ordinary shares. These shareholders, if acting together, would be able to
significantly influence all matters requiring approval by our shareholders,
including the election of directors. This concentration of ownership may also
have the effect of delaying or preventing a change of control of our company,
which could have a material adverse effect on our stock price. These actions may
be taken even if our other investors oppose them.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.

     Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
any merger or acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist. Israeli law regulates mergers, votes
required to approve a merger, acquisition of shares through tender offers and
transactions involving significant shareholders. In addition, our articles of
association provide for a staggered board of directors and for restrictions on
business combinations with interested shareholders. Any of these provisions may
make it more difficult to acquire our company. Accordingly, an acquisition of us
could be delayed or prevented even if it would be beneficial to our
shareholders.

OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES.

     As of June 30, 2003, we had 26,418,676 ordinary shares outstanding (net of
39,000 shares held in treasury), including shares held by a trustee for issuance
under outstanding options. In addition, as of June 30, 2003, we had 3,147,920
ordinary shares issuable upon exercise of outstanding options, and 1,649,210
additional ordinary shares reserved for issuance pursuant to our stock option
plans and employee share purchase plan. If we or our existing shareholders sell
a large number of our ordinary shares, the price of our ordinary shares could
fall dramatically. Restrictions under the securities laws limit the number of
ordinary shares available for sale by our shareholders in the public market. We
have filed a Registration Statement on Form S-8 to register for resale the
ordinary shares reserved for issuance under our stock option plans.

OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.

     The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies have been highly volatile. The
price at which our ordinary shares trades is likely to be volatile and may
fluctuate substantially due to factors such as:

     o    announcements of technological innovations;

     o    announcements relating to strategic relationships;

                                      -27-
<PAGE>

     o    conditions affecting the software and Internet industries;

     o    trends related to the fluctuations of stock prices of companies such
          as ours;

     o    our historical and anticipated quarterly and annual operating results;

     o    variations between our actual results and the expectations of
          investors or published reports or analyses of ClickSoftware;

     o    announcements by us or others affecting our business, systems or
          expansion plans; and

     o    general conditions and trends in technology industries.

     In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the ordinary course of our operations, we are exposed to certain market
risks, primarily changes in foreign currency exchange rates and interest rates.

     FOREIGN CURRENCY EXCHANGE RATE RISK. We develop products in Israel and sell
them primarily in North America, Europe, and the Asia Pacific and Africa
regions. 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. In 2002, 66% of our revenues and 50% of our expenses were
denominated in U.S. dollars. Since our financial results are reported in our
functional currency, U.S. dollars, fluctuations in the exchange rates between
the dollar and non-dollar currencies may have a material effect on our results
of operations. The exposure to currency exchange rate changes is diversified due
to the number of different countries and currencies in which we conduct
business. The main currencies are US$, NIS, GBP and Euro.

     In addition to above, we have balance sheet exposure related to foreign net
assets.

     We enter from time to time into forward Contracts related to foreign
currency rates in order to protect against foreign currency accounts receivables
and certain forecasted transactions. The impact of those transactions is
immaterial. We do not participate in any speculative investments.

     INTEREST RATE RISK. As of June 30, 2003, we had cash and cash equivalents
of $8.0 million, which consist of cash and highly liquid short-term investments.
Of this amount, a total of $2.0 million is denominated in non-dollar currencies.

     A hypothetical 10 percent change in exchange rates against the U.S. dollar
and a substantial decrease in market interest rates will have immaterial impact
on our financial condition.

     The following table provides information about our investment portfolio,
cash, and long-term debts as of June 30, 2003 and presents principal cash flows
and related weighted averages interest rates by expected maturity dates.

                                      -28-
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                <C>          <C>
        YEAR OF MATURITY                                                 2003      2004
        (in thousands of dollars)

        A) CASH AND CASH EQUIVALENTS AND INVESTMENT PORTFOLIO:
        Cash and Cash equivalents                                      $3,910        --
          Average interest rate                                          0.9%        --


        Short Term Bonds                                               $1,000        --
          Average interest rate                                          1.2%        --


        Bank deposits                                                  $2,283    $1,140
          Average interest rate                                          1.2%      1.2%

        B) LONG-TERM DEBTS:
        None.
</TABLE>

ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     In the last quarter of 2002, we identified a weakness in the process of
recognizing and recording revenues in our books which led to the restatement of
our financial statements for the years 2001, 2000 and 1999 and for the six
months ended June 30, 2002. (See also note 3 of the notes to our consolidated
financial statements on Form 10-K/A for the year ended December 31, 2001, filed
with the Securities and Exchange Commission on January 24, 2003.)

     Based on the instructions of the audit committee of our Board of Directors
and with the assistance of its independent auditor, we adopted a new policy for
revenue recognition. The policy includes procedures and practices to assure the
proper recognition of revenue in the future. In addition, to improve the overall
effectiveness of our disclosure controls and procedures, we have expanded the
scope of periodic discussions between our finance department and our other
operational departments, and expanded our formal reporting procedures. We have
also established a Disclosure Committee with a mandate to assist our CEO and CFO
in overseeing the accuracy and timeliness of our public disclosure and in
evaluating regularly our disclosure and control procedures.

     Our management evaluated, with the participation of our chief executive
officer and our chief financial officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. They did not find any weaknesses not identified previously,
and believe that the changes we began implementing at the end of 2002 and
described above address the weaknesses identified.

CHANGES IN INTERNAL CONTROLS

     There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

                                      -29-
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     During the quarterly period ending June 30, 2003, no material legal
proceeding was filed against the Company. On June 12, 2003, the lawsuit which
had been filed against the Company and certain of its current and former
officers in the United States District Court for the District of Massachusetts
in December 2002 asserting certain securities law claims was dismissed without
prejudice for failure of the plaintiff to file a return of service and /or show
good cause.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On May 28, 2003, the Annual Meeting of Shareholders of the Company was held
at 11:00 am, local time, at the Company's offices at 34 Habarzel Street, Tel
Aviv, Israel.

     1.   ELECTION OF CLASS I DIRECTOR, CLASS II
     DIRECTORS, CLASS III DIRECTORS AND
     EXTERNAL DIRECTORS                            VOTES FOR     VOTES AGAINST
                                                  ------------  ---------------
     James W. Thanos (Class I director)            23,806,259        12,462
     Roni Einav (Class II director)                23,806,259        12,462
     Gil Weiser (Class II director)                23,806,259        12,462
     Moshe BenBassat (Class III director)          23,722,859        83,900
     Eddy Shalev (Class III director)              23,806,259        12,462
     Naomi Atsmon (External director)              23,806,259        12,462
     Dan Falk (External director)                  23,806,259        12,462

     Other matters voted upon at the meeting and the number of affirmative and
negative votes cast with respect to each such matter were as follows:

     2.   To ratify the appointment of Brightman Almagor & Co., a member firm of
Deloitte Touche Tohmatsu, independent accountants of the Company for the 2003
fiscal year. The number of affirmative votes for this proposal was 23,776,771,
the number of negative votes was 40,750 and the number of abstentions was 1,200.

     3.   To ratify and approve, as described in the Company's proxy statement
filed on April 30, 2003 (the "Proxy Statement"), to each of Naomi Atsmon and
Dan Falk, grants of options to purchase 30,000 shares at the fair market value
per share at the date of annual meeting. Also to ratify and approve the grant,
as described in the Company's Proxy Statement, to Moshe BenBassat of an option
to purchase 250,000 shares at the fair market value per share at the date of
annual meeting. The number of affirmative votes for this proposal was
23,318,894, the number of negative votes was 498,720 and the number of
abstentions was 1,106.

     4.   To ratify and approve grants of cash compensation to outside
directors, as described in the Company's Proxy Statement. The number of
affirmative votes for this proposal was 23,657,765, the number of negative votes
was 160,855 and the number of abstentions was 100.

                                      -30-
<PAGE>

     5.   To ratify and approve adoption of 2003 Israeli Share Option Plan, as
described in the Company's Proxy Statement. The number of affirmative votes for
this proposal was 15,731,437, the number of negative votes was 1,852,598 and the
number of abstentions was 67,105.

     6.   To ratify and approve, as described in the Company's Proxy Statement,
a revised employment agreement with Moshe BenBassat, the Company's Chairman and
Chief Executive Officer. The number of affirmative votes for this proposal was
23,586,475, the number of negative votes was 163,535 and the number of
abstentions was 68,711.

     7.   To ratify and approve certain amendments to the Company's articles of
association, as described in the Company's Proxy Statement, to permit the
Company to prospectively exempt directors and officers from damages resulting
from a breach of the duty of care toward the Company. The number of affirmative
votes for this proposal was 21,868,163, the number of negative votes was
1,885,904 and the number of abstentions was 64,653.

     8.   To ratify and approve the issuance of certain letters of
indemnification, insurance and exemption to directors, as described in the
Company's Proxy Statement. The number of affirmative votes for this proposal was
21,937,733, the number of negative votes was 1,878,381 and the number of
abstentions was 2,606.

ITEM 5.  OTHER INFORMATION

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>

                                  EXHIBIT INDEX


(a)      Exhibit Number                          Description
----------------------------  --------------------------------------------------
<S>                             <C>
         3.3                    Amended Articles of Association of the Company

        10.18 (1)               Amended Form of Indemnification Agreement

        10.19 (1)               Amended Employment Agreement between the Company and Moshe BenBassat

        10.20 (1)               2003 Israeli Share Option Plan

        31.1                    Certification of the Chief Executive  Officer pursuant to 18 U.S.C.  Section 1350, as
                                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2                    Certification of the Chief Financial  Officer pursuant to 18 U.S.C.  Section 1350, as
                                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        32.1                    Certification of the Chief Executive  Officer pursuant to 18 U.S.C.  Section 1350, as
                                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        32.2                    Certification of the Chief Financial  Officer pursuant to 18 U.S.C.  Section 1350, as
                                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the Company's definitive proxy statement filed on April 30,2003.

(b)      Reports on Form 8-K:
</TABLE>

                                      -31-
<PAGE>

     On May 14, 2003, the Company filed a current report on Form 8-K pursuant to
the Securities and Exchange Act of 1934, as amended, reporting the Company's
financial results for the quarter ended March 31,2003.


                                      -32-

<PAGE>

                                                                     EXHIBIT 3.3



                             ARTICLES OF ASSOCIATION

                                       OF

                         CLICKSOFTWARE TECHNOLOGIES LTD.

                     AMENDED AND RESTATED AS OF MAY 28, 2003




                                      -33-
<PAGE>



                             ARTICLES OF ASSOCIATION

                                       OF

                           CLICKSOFTWARE TECHNOLOGIES  LTD.

--------------------------------------------------------------------------------


INTERPRETATION


1.    In these Articles, the words in the first column of the following table
      shall bear the meanings set opposite them respectively in the second
      column thereof, if not inconsistent with the subject or context:

      Words                        Meanings

      The Company                  The above-named Company.

      Companies                    Law The Companies Law 1999 (the "Companies
                                   Law") and all orders and regulations issued
                                   thereunder as amended from time to time,
                                   including any law or statute replacing it.

      The                          Statutes The Companies Law, the Securities
                                   Law of 1968 and every other ordinance or law
                                   for the time being in force concerning
                                   companies and affecting the Company.

      These                        Articles These Articles of Association, as
                                   shall be amended from time to time.

      Officer                      A Director, President, General Manager, Chief
                                   Executive Officer, Vice President, Chief
                                   Financial Officer, any other manager directly
                                   subordinate to the President, and any person
                                   who fills one of the said positions in the
                                   Company, even if he carries a different
                                   title.

      Audit Committee              As defined in the Companies Law.

      The Office                   The registered office of the Company.

      The                          Seal Any of (i) the rubber stamp of the
                                   Company, (ii) the facsimile signature of the
                                   Company, or (iii) the electronic signature of
                                   the Company as approved by the Board of
                                   Directors.

      Shareholders                 Register The shareholders register required
                                   to be kept according to the Companies Law and
                                   any other shareholders register permitted to
                                   be kept by the Company according to the
                                   Companies Law.

                                      -34-
<PAGE>


      Month                        A Gregorian month.

      NIS                          New Israeli Shekel

      Writing                      Printing, lithography, photography and any
                                   other mode or modes of representing or
                                   reproducing words in a visible form.


      Words importing the masculine gender shall include the feminine gender,
      and words importing person shall include corporations.

      Subject as aforesaid, any words or expressions defined in the Statutes
      shall, except where the subject or context forbids, bear the same meanings
      in these Articles.


PUBLIC COMPANY


3.    The Company is a limited public company, consequently:

      (a)  no limitations will apply to the transfer of its shares;

      (b)  the number of shareholders will be unlimited;

      (c)  the Company may issue shares, debentures or any other securities to
           the public.

      (d)  the liability of its shareholders is limited by shares.

SHARE CAPITAL

4.    (a)  The share capital of the Company is NIS two million (2,100,000),
           divided into:

           (i)    97,000,000 Ordinary Shares of NIS 0.02 nominal value each
                  ("Ordinary Shares");

           (ii)   3,000,000 Non-Voting Ordinary Shares of NIS 0.02 nominal value
                  each ("Non-Voting Ordinary Shares"), and

           (ii)   5,000,000 Special Preferred Shares of NIS 0.02 nominal value
                  each ("Special Preferred Shares").

      Except as otherwise provided herein, the shares of each class will rank
      pari passu with all the other shares in that class.

      (b)  Each Ordinary Share entitles its holder to receive notice of, and to
           participate in, all General Meetings of the Company, and to one (1)
           vote in such meetings for every share, and the other rights specified
           in these Articles.

      (c)  The Special Preferred Shares may be issued from time to time as
           shares of one or more series, with such distinctive serial
           designations as may be stated or expressed in the resolution or
           resolutions providing for the issuance of such shares from time to
           time

                                      -35-
<PAGE>

          adopted by the Board of Directors of the Company. In the resolution or
          resolutions providing for the issuance of such shares, the Board of
          Directors of the Company is expressly authorized, without the need for
          shareholder action, to fix the terms and preferences of the shares of
          such series, including without limitation the dividend rate, number of
          shares, and the terms upon which the shares are convertible into or
          exchangeable for shares of any other class or classes.

     (d)  Each Non-Voting Ordinary Share will have the same rights as the
          Ordinary Shares except that they will not have any voting rights in
          the Company, including the right to receive notice of meetings of
          shareholders and to participate in and vote at meetings of
          shareholders.

          Each Non-Voting Ordinary Share is convertible at any time after
          issuance of such share at the option of the holder thereof and without
          payment of any additional consideration into one (1) fully-paid and
          non-assessable voting Ordinary Share, according to the procedure set
          out below. Before any holder of Non-Voting Ordinary Shares shall be
          entitled to convert the same into Ordinary Shares to be converted, the
          holder shall deliver to the Company written notice specifying the
          number of shares to be converted. From and after the date on which the
          Company or its transfer agent received such notice, shares included in
          such notice shall be deemed converted as specified in the notice, and
          the converting holder shall be deemed the owner and shall be treated
          for all purposes as the record holder of the number of Ordinary Shares
          into which such shares were converted. Promptly after delivery of such
          written notice, the holder shall surrender the certificate(s)
          therefor, duly endorsed, at the office of the Company or of any
          transfer agent for such shares. The Company shall, as soon as
          practicable thereafter, issue and deliver at such office to such
          holder, certificate(s) for the number of shares to which such holder
          shall be entitled as aforesaid.

AMENDMENT OF ARTICLES

5.   These Articles (with the exception of Article 100 which may be amended as
     provided therein) may be amended by a majority vote at a meeting of
     shareholders of the Company, with the exception of Article 100 which may be
     amended only by the affirmative vote of two - thirds of the shareholders
     present (in person or by proxy) and voting on such resolution at a General
     Meeting.

     If the Company's shares are divided into classes of shares, then a change
     that infringes on the rights of a class of shares shall be made only with
     the approval of a General Meeting of that class; the provisions of these
     Articles shall apply, mutatis mutandis, to the adoption of decisions by a
     class meeting.

     Notwithstanding the provisions of this Article , a change of these Articles
     that obligates a shareholder to acquire additional shares or to increase
     the extent of his liability shall not obligate the shareholder without his
     consent.

SHARES

6.   Subject to these Articles or to the terms of any resolution creating new
     shares, the unissued shares in the registered share capital of the Company
     from time to time shall be under the

                                      -36-
<PAGE>

     control of the Board of Directors, which shall have the power to allot
     shares or otherwise dispose of them to such persons, on such terms and
     conditions, and either at par or at a premium or, subject to the provisions
     of the Statutes, at a discount, and at such times as the Board of Directors
     may think fit, and the power to give to any person the option to acquire
     from the Company any shares, either at nominal value or at a premium or,
     subject as aforesaid, at a discount, during such time and for such
     consideration as the Board of Directors may determine.

7.   If two or more persons are registered as joint holders of any share, any
     one of such persons may give effectual receipts for any dividends or other
     monies in respect of such share.

     The Company shall not be required to recognize any holder of a share as a
     holder other than the registered holder of such share.

8.   Every shareholder registered in the Shareholders' Register shall be
     entitled, without payment, to receive within thirty days after allotment or
     registration of transfer (unless the conditions of issuance provide for a
     longer interval), one certificate under the Seal for all the shares
     registered in his name, and if the Board of directors so approves, several
     certificates, each for one or more of such shares. Each certificate shall
     specify the number and denoting numbers of the shares in respect of which
     it is issued and may also specify the amount paid up thereon; provided
     that, in the case of joint holders, the Company shall not be bound to issue
     more than one certificate to all the joint holders, and delivery of such
     certificate to one of them shall be sufficient delivery to all. Every
     certificate shall be signed by one Director and countersigned by the
     Secretary or some other person nominated by the Board of Directors for this
     purpose.

9.   If any share certificate shall be defaced, worn out, destroyed or lost, it
     may be renewed on such evidence being produced, and such indemnity (if any)
     being given as the Board of Directors shall require and (in the case of
     defacement or wearing out) upon delivery of the old certificate and, in any
     case, upon payment of such sum not exceeding NIS 50 (fifty New Israeli
     Shekels) as the Board of Directors may from time to time require.

10.  The Company may, directly or indirectly, purchase its own shares subject to
     the provisions of the Companies Law. If the Company purchases its own
     shares, such shares will not have any rights as long as they are owned by
     the Company.

11.  (a)  A subsidiary or some other corporate body under the Company's control
          (in this Article: "ACQUIRING CORPORATE BODY") may acquire shares of
          the Company subject to the provisions of the Companies Law, on
          condition that the subsidiary's Board of Directors or the Directors of
          the acquiring corporate body determined that - had the acquisition
          been made by the Company - it would have been permitted by the
          provisions of the Companies Law.

     (b)  If the Company's shares were acquired by a subsidiary or by an
          acquiring corporate body, such shares shall not grant voting rights as
          long as they are owned by the subsidiary or by the acquiring body
          corporate.

     (c)  If a prohibited distribution (as defined in Section 301 to the
          Companies Law) was made, then the refund specified in Section 310 to
          the Companies Law shall be made to the subsidiary or to the acquiring
          body corporate and the provisions of Section 311 shall
          apply, mutatis mutandis, to the Directors of the subsidiary and to the
          Directors of the

                                      -37-
<PAGE>

          acquiring body corporate. However, if the Company's Board of Directors
          determined that the distribution is permitted, then the responsibility
          shall be that of the Company's Directors, as provided in Section 311
          to the Companies Law.

     (d)  Notwithstanding the provisions of Sub-article (a), acquisition by a
          subsidiary or by an acquiring corporate body that is not wholly owned
          by the Company constitutes a distribution in an amount equal to the
          amount of the acquisition, multiplied by the proportion of rights in
          the subsidiary's capital or in the capital of the acquiring corporate
          body held by the Company.

TRANSFER OF SHARES

12.  No transfer of shares shall be registered unless a proper writing or
     instrument of transfer (in any customary form or any other form
     satisfactory to the Board of Directors) has been submitted to the Company
     (or its transfer agent), together with the share certificate(s) and such
     other evidence of title as the Board of Directors may reasonably require.
     Until the transferee has been registered in the Shareholders Register
     (which the Company guarantees to perform promptly from submission to it of
     the foregoing) in respect of the shares so transferred, the Company may
     continue to regard the transferor as the owner thereof.

13.  The Board of Directors may refuse, without giving any reasons therefor, to
     register any transfer of shares where the Company has a lien on the shares,
     constituting the subject matter of the transfer, but fully paid-up shares
     may be transferred freely and such transfers do not require the approval of
     the Board of Directors.

     All instruments of transfer shall remain in the custody of the Company, but
     any such instrument which the Board of Directors refused to register shall
     be returned to the person from whom it was received, if such request be
     made by him.

14.  The Transfer Records and the Shareholders Register and Debenture Holders
     (if any) Register and Debenture Stock Holders (if any) Register and other
     securities (if any) Register of the Company may be closed during such time
     as the Board of Directors may deem fit, not exceeding, in the aggregate,
     thirty (30) days in each year.

TRANSMISSION OF SHARES

15.  In the case of the death of a shareholder, or a holder of a debenture, the
     survivor or survivors, where the deceased was a joint holder, and the
     executors and/or administrators and/or the legal heirs of the deceased
     where he was a sole or only surviving holder, shall be the only persons
     recognized by the Company as having any title to his shares or his
     debentures, but nothing herein contained shall release the estate of a
     deceased joint holder from any liability in respect of any share or any
     debenture jointly held by him.

16.  Any person who becomes entitled to a share or a debenture in consequence of
     the death or bankruptcy or any shareholder may, upon producing such
     evidence of title as the Board of Directors shall require, with the consent
     of the Board of Directors, be registered himself as holder of the share or
     the debenture or, subject to the provisions as to transfers herein
     contained, transfer the same to some other person.

                                      -38-
<PAGE>

17.  A person entitled to a share or a debenture by transmission shall be
     entitled to receive, and may given a discharge for, any dividends or
     interest or other monies payable in respect of the share or debenture, but
     he shall not be entitled in respect of it to receive notices of, or to
     attend or vote at meetings of the Company or, save as aforesaid, to
     exercise any of the rights or privileges of a shareholder or a holder of a
     debenture unless and until he shall become a shareholder in respect of the
     share or a holder of the debenture.

ALTERATIONS OF CAPITAL

18.  Subject to the provisions of the Companies Law, the Company may from time
     to time by a majority vote at a meeting of shareholders of the Company:

     (a)  consolidate and divide all or any of its share capital into shares of
          larger amount than its existing shares; or

     (b)  cancel registered share capital that has not yet been issued, on
          condition that there are no undertakings of the Company - including
          conditional undertakings to issue such shares; or

     (c)  divide its share capital or any part thereof into shares of smaller
          amount than is fixed by its Articles of Association by sub-division of
          its existing shares or any of them , and so that as between the
          resulting shares, one or more of such shares may, by the Resolution by
          which such sub-division is effected, be given any preference or
          advantage as regards dividend, return of capital, voting or otherwise
          over the others or any other shares; or

     (d)  reduce its share capital and any capital redemption reserve fund in
          any way that may be considered expedient.

19.  The Company may, subject to the Companies Law, issue redeemable shares and
     redeem the same according to the terms and conditions which the Company
     shall determine.

INCREASE OF CAPITAL

20.  The Company may from time to time by a majority vote at a meeting of
     shareholders, whether all the shares for the time being authorized shall
     have been issued or all the shares for the time being issued shall have
     been fully called up or not, increase its share capital by the creation of
     new shares; such new capital to be of such amount and to be divided into
     shares of such respective amounts and (subject to any special rights for
     the time being attached to any existing class of shares) to carry such
     preferential, deferred or other special rights (if any) or to be subject to
     such conditions or restrictions (if any) in regard to dividend, return of
     capital, voting or otherwise as the General Meeting deciding upon such
     increase directs.

21.  Except so far as otherwise provided by or pursuant to these Articles or by
     the conditions of issuance, any new share capital shall be considered as
     part of the original ordinary share capital of the Company, and shall be
     subject to the same provisions with reference to liens, transfer,
     transmission and otherwise as the original share capital.

                                      -39-
<PAGE>

MODIFICATION OF CLASS RIGHTS

22.  If, at any time, the share capital is divided into different classes of
     shares, the rights attached to any class (unless otherwise provided by the
     terms of issuance of the shares of that class) may be varied with the
     consent in writing of the holders of all the issued shares of that class,
     or with the sanction of a majority vote at a meeting of the shareholders
     passed at a separate meeting of the holders of the shares of the class. The
     provisions of these Articles relating to General Meetings shall apply,
     mutatis mutandis, to every such separate General Meeting. Any holder of
     shares of the class present in person or by proxy may demand a secret poll.

23.  Unless otherwise provided by the conditions of issuance, the enlargement of
     an existing class of shares, or the issuance of additional shares thereof,
     shall not be deemed to modify or abrogate the rights attached to the
     previously issued shares of such class or of any other class.

BORROWING POWERS

24.  The Board of Directors may from time to time, in its discretion, cause the
     Company to borrow or secure the payment of any sum or sums of money for the
     purposes of the Company, and may secure or provide for the repayment of
     such sum or sums in such manner, at such times and upon such terms and
     conditions in all respects as it sees fit and, in particular, by the
     issuance of bonds, perpetual or redeemable debentures, debenture stock, or
     any mortgages, charges or other securities on the undertaking, or the whole
     or any part of the property of the Company, both present and future,
     including units uncalled or called but unpaid capital for the time being.

POWERS OF THE GENERAL MEETING

25.  Without derogating from the authority of the General Meeting pursuant to
     these Articles, the Company's decisions on the following matters shall be
     adopted at a General Meeting:

     (1)  any changes in these Articles;

     (2)  exercise of the powers of the Board of Directors in accordance with
          the provisions of Section 52(a) of the Companies Law;

     (3)  appointment of the Company's Auditor;

     (4)  appointment of External Directors, in accordance with the provisions
          of the Companies Law;

     (5)  approval of acts and transactions that require approval by the General
          Meeting under the provisions of Articles 255 and 268 to 275 of the
          Companies Law;

     (6)  the increase and reduction of the registered share capital, in
          accordance with the provisions of Articles 286 and 287 to the
          Companies Law;

     (7)  a merger, as specified in Article 320(a) to the Companies Law.

                                      -40-
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GENERAL MEETINGS

26.  (a)  General Meetings shall be held at least once in every calendar year at
          such time, not being more than fifteen months after the holding of the
          last preceding General Meeting, and at such time and place as may be
          determined by the Board of Directors. Such Annual General Meetings
          shall be called "Annual Meetings", and all other General Meetings of
          the shareholders shall be called "Special Meetings". The Annual
          Meeting shall receive and consider the Directors' Report, the
          Financial Statements, appoint auditors, elect directors, and transact
          any other business which, under these Articles or by the Companies
          Law, may be transacted at a General Meeting of the Company, provided
          that notice of such other business was given to shareholders in
          accordance with the provisions of these Articles. At a General
          Meeting, decisions shall be adopted only on matters that were
          specified on the agenda.

     (b)  Any reference in these Articles to a "General Meeting" will be either
          a General Meeting or a Special Meeting, according to the context.

27.  The Board of Directors may, whenever it deems necessary, and shall upon
     such requisition in writing as is provided by Section 63(b) of the
     Companies Law, convene a General Meeting. Any such request must state the
     purposes for which the meeting is to be called, be signed by the requesting
     shareholders, and must be deposited at the Office. Such request may consist
     of several documents in like form, each signed by one or more requesting
     shareholder.

28.  Unless a longer period for notice is prescribed by the Companies Law, at
     least ten (10) days and not more than sixty (60) days notice of any General
     Meeting shall be given, specifying the place, the day and the hour of
     meeting and, in the case of special business, the nature of such business,
     shall be given in the manner hereinafter mentioned, to such shareholders as
     are under the provisions of these Articles, entitled to receive notices
     from the Company. Notices shall be given by mail or by personal delivery to
     every registered shareholder of the Company, to his address as described in
     the Shareholders Register of the Company or such other address as
     designated by him in writing for this purpose. Provided that the accidental
     omission to give such notice to, or the non-receipt of such notice by, any
     such shareholder shall not invalidate any resolution passed or proceeding
     held at any such meeting and, with the consent of all the shareholders for
     the time being entitled to receive notice of meetings, a meeting may be
     convened upon a shorter notice or without notice, and generally in such
     manner as such shareholders may approve. Such consent may be given at the
     meeting or retrospectively after the meeting. If the shareholder did not
     provide the Company any address for the delivery of notices, the
     shareholder shall be deemed to have waived his right to receive notices.

29.  Only shareholders of record as reflected on the Company's Share Register at
     the close of business on the date fixed by the Board of Directors as the
     record date determining the then shareholders who will be entitled to vote,
     shall be entitled to notice of, and to vote, in person or by proxy, at a
     General Meeting and any postponement or adjournment thereof. The Board of
     Directors will fix the record date of not less than ten (10) nor more than
     sixty (60) days before the date of the General Meeting.

                                      -41-
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PROCEEDINGS AT GENERAL MEETINGS

30.  No business shall be transacted at any General Meeting unless a quorum is
     present when the meeting proceeds to business. The quorum at any Meeting
     shall be two shareholders present in person or by proxy, holding or
     representing at least thirty three percent (33%) of the total voting rights
     in the Company. A company being a shareholder shall be deemed to be
     personally present for the purpose of this Article if represented by its
     representative duly authorized in accordance with Article 42.

31.  If, within half an hour from the time appointed for the holding of a
     General Meeting, a quorum is not present, the meeting shall stand adjourned
     to the same day in the next week at the same time and place, or any time
     and hour as the Board of Directors shall designate and state in a notice to
     the shareholders entitled to vote at the original meeting, and if, at such
     adjourned meeting, a quorum is not present within half an hour from the
     time appointed for holding the meeting any two shareholders present in
     person or by proxy shall constitute a quorum. Notwithstanding the
     aforesaid, if a General Meeting was convened at the demand of shareholders
     as permitted by Section 63(b) of the Companies Law, then a quorum at such
     adjourned meeting shall be present only if one or more shareholders are
     present who held in the aggregate at least 5% of the issued share capital
     of the Company and at least 1% of the voting rights in the Company or one
     or more shareholders who hold in the aggregate at least 5% of the voting
     rights in the Company.

32.  (a)  At every General Meeting, a chairman shall be elected for that
          meeting.

     (b)  The election of the meeting's chairman shall be held at the beginning
          of the meeting's discussions, which shall be opened by the chairman of
          the Board of Directors or by a Director whom the Board of Directors
          authorized to do so.

33.  The chairman may, with the consent of any meeting at which a quorum is
     present, and shall, if so directed by the meeting, adjourn any meeting from
     time to time and from place to place as the meeting shall determine.
     Whenever a meeting is adjourned pursuant to the provisions of this Article
     for more than seven days, notice of the adjourned meeting shall be given in
     the same manner as in the case of an original meeting. Save as aforesaid,
     no shareholder shall be entitled to any notice of an adjournment, or of the
     business to be transacted at an adjourned meeting. No business shall be
     transacted at any adjourned meeting other than the business which might
     have been transacted at the meeting from which the adjournment took place.

VOTES OF SHAREHOLDERS

34.  Except as otherwise provided in these Articles, any resolution at a General
     Meeting shall be deemed adopted if approved by the holders of a majority of
     the voting rights in the Company represented at the meeting in person or by
     proxy and voting thereon. In the case of an equality of votes, either on a
     show of hands or a poll, the chairman of the meeting shall not be entitled
     to a further or casting vote.

35.  At all General Meetings, a resolution put to a vote at the meeting shall be
     decided on a show of hands unless, before or upon the declaration of the
     result of the show of hands, a poll in writing be demanded by the chairman
     (being a person entitled to vote), or by at least two shareholders present,
     in person or by proxy, holding at least 5% of the issued share capital of

                                      -42-
<PAGE>

     the Company and, unless a poll be so demanded, a declaration by the
     chairman of the meeting that a resolution has been carried, or has been
     carried unanimously or by a particular vote, or lost, or not carried by a
     particular vote, shall be conclusive, and an entry to that effect in the
     Minute Book of the Company shall be conclusive evidence thereof, without
     proof of the number or proportion of the votes recorded in favor of or
     against such resolution.

36.  If a poll be demanded in manner aforesaid, it shall be taken forthwith, and
     the result of the poll shall be deemed to be the resolution of the meeting
     at which the poll was demanded. The demand of a poll shall not prevent the
     continuance of a meeting for the transaction of any business other than the
     question on which a poll has been demanded.

37.  Any shareholder which is not a natural person may, by resolution of its
     directors or other governing body, authorize such person as it thinks fit
     to act as its representative at any General Meeting, and the person so
     authorized to the satisfaction of the Company shall be entitled to exercise
     the same powers on behalf of such company, which he represents as that
     company could exercise if it were an individual shareholder.

38.  Subject to any rights or restrictions for the time being attached to any
     class or classes of shares, every shareholder shall have one vote for each
     share of which he is the holder, whether on a show of hands or on a poll.

39.  If any shareholder be a lunatic, idiot, or non compos mentis, he may vote
     by his committee, receiver, curator bonis or other legal curator, and such
     last-mentioned persons may give their votes either personally or by proxy.

40.  If two or more persons are jointly entitled to a share then, in voting upon
     any question, the vote of the senior person who tenders a vote, whether in
     person or by proxy, shall be accepted to the exclusion of the votes of the
     other registered holders of the share and, for this purpose, seniority
     shall be determined by the order in which the names stand in the
     Shareholders Register.

41.  Votes may be given either personally or by proxy. A proxy need not be a
     shareholder of the Company.

42.  (a)  The instrument appointing a proxy shall be in writing in the usual
          common form, or such form as may be approved by the Board of
          Directors, and shall be signed by the appointor or by his attorney
          duly authorized in writing or, if the appointor is a corporation, the
          corporation shall vote by its representative, appointed by an
          instrument duly signed by the corporation.

     (b)  The instrument appointing a proxy shall be deemed to include
          authorization to demand a poll or to vote on a poll on behalf of the
          appointor.

43.  A vote given in accordance with the terms of an instrument of proxy shall
     be valid notwithstanding the previous death or insanity of the principal,
     or revocation of the proxy, or transfer of the share in respect of which
     the vote is given, unless an intimation in writing of the death, revocation
     or transfer shall have been received at the Office before the commencement
     of the meeting or adjourned meetings at which the proxy is used.

                                      -43-
<PAGE>

44.  The instrument appointing a proxy shall be deposited at the Office or at
     such other place or places, whether in Israel or elsewhere, as the Board of
     Directors may from time to time, either generally or in a particular case
     or class of cases prescribe, at least forty-eight (48) hours before the
     time appointed for holding the meeting or adjourned meeting at which the
     person named in such instrument proposes to vote; otherwise, the person so
     named shall not be entitled to vote in respect thereof; but no instrument
     appointing a proxy shall be valid after the expiration of twelve months
     from the date of its execution.

45.  Subject to the provisions of the Companies Law, a resolution in writing
     (approved by letter, telex, facsimile or otherwise) by all the
     shareholders, in person or by proxy, for the time being entitled to vote at
     a General Meeting of the Company, shall be as valid and as effectual as a
     resolution adopted by a General Meeting duly convened, held and constituted
     for the purpose of passing such resolution.

46.  A shareholder will be entitled to vote at the Meetings of the Company by
     several proxies appointed by him, provided that each proxy shall be
     appointed with respect to different shares held by the appointing
     shareholder. Every proxy so appointed on behalf of the same shareholder
     shall be entitled to vote as he sees fit.

47.  No person shall be entitled to vote at any General Meeting (or be counted
     as a part of the quorum thereof) unless all calls then payable by him in
     respect of his shares in the Company shall have been paid.

DIRECTORS POWERS AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS

48.  (a)  Without derogating from the authority of the General Meeting pursuant
          to these Articles and the Companies Law, the Board of Directors shall
          formulate the Company's policy and shall supervise the exercise of the
          General Manager's office and his acts, and as part thereof it -

          (1)  shall determine the Company's plans of activity, the principles
               for financing such plans and the order of priority among them;

          (2)  shall examine the Company's financial situation and set the
               framework of credit which the Company may take;

          (3)  shall determine the organizational structure and the compensation
               policy of employees;

          (4)  may decide to issue a series of debentures;

          (5)  is responsible for the preparation and approval of the financial
               reports according to Section 171 to the Companies Law;

          (6)  shall report to the Annual Meeting about the state of the
               Company's affairs and on its business results, as required by
               Section 173 to the Companies Law;

          (7)  shall appoint and dismiss the General Manager, as provided by
               Section 250 to the Companies Law;

          (8)  shall decide on the acts and transactions that require its
               approval in accordance with these articles or under the
               provisions of Sections 255 and 268 to 275 to the Companies Law;

          (9)  may issue shares and securities convertible into shares up to the
               limit of the Company's registered share capital, under the
               provisions of Section 288 to the Companies Law;

                                      -44-
<PAGE>

          (10) may decide on a distribution according to Sections 307 and 308 to
               the Companies Law;

          (11) shall express its opinion on a special purchase offer, according
               to Section 329 to the Companies Law.

     (b)  The powers of the Board of Directors under this Article cannot be
          delegated to the General Manager.

DIRECTORS

49.  The Board of Directors of the Company shall consist of a minimum of two (2)
     and a maximum of eleven (11) Directors.

50.  (a)  Except for External Directors (as defined in the Companies Law), all
          directors shall be classified, with respect to the time for which they
          severally hold office, into three classes, as nearly equal in number
          as possible, one class to hold office initially for a term expiring at
          the 2001 Annual Meeting of the Company, another class to hold office
          initially for a term expiring at the 2002 Annual Meeting of the
          Company, and another class to hold office initially for a term
          expiring at the 2003 Annual Meeting of the Company, with the members
          of each class to hold office until their successors have been duly
          elected and qualified. At each Annual Meeting following the 2001
          Annual Meeting, the class of directors whose term expires at that
          meeting shall be elected to hold office for a term expiring at the
          Annual Meeting of the Company held in the third year following the
          year of their election and until their successors have been duly
          elected and qualified.

     (b)  Any director or directors may be removed from office at any time, but
          only for "cause" and only by the affirmative vote of (i) the holders
          of the majority of the Ordinary Shares present in person or by proxy
          and voting thereon, or (ii) a majority of the Board of Directors. For
          purposes of this clause (b): "cause" shall mean the willful and
          continuous failure of a director substantially to perform such
          director's duties to the Company (other than any such failure
          resulting from incapacity due to physical or mental illness) or the
          willful engaging by a director in gross misconduct materially and
          demonstrably injurious to the Company.

     (c)  The Company shall appoint External Directors as and to the extent
          required by, and they shall hold office according to, the Companies
          Law, as long as the Company is required by the Companies Law to
          appoint External Directors.

51.  (a)  No person shall be nominated for the office of a director at a General
          Meeting, except for directors whose term of office expired at the time
          the General Meeting was convened, persons nominated for the office of
          a director by the Board of Directors, and as provided for in Article
          51(b).

     (b)  Any shareholder entitled to receive notice of and vote at a General
          Meeting desiring to propose a nominee for director to be elected at an
          Annual General Meeting of Shareholders has to deliver notice to the
          Secretary, at the Company's principal offices, not later than ninety
          (90) days prior to the date of the annual General Meeting at which
          meeting such election is to occur, whichever date is later. The

                                      -45-
<PAGE>

          notice shall set forth: (i) the name and address, as they appear on
          the Company's share register, of the shareholder proposing such
          nominee, (ii) the identity and background of the nominee, (iii) the
          class and number of shares of the Company beneficially owned by such
          shareholder, (iv) a representation that such shareholder is a
          shareholder of record and intends to appear by person or by proxy at
          such General Meeting to bring the General Meeting the nominee
          specified in the notice, (v) a brief description of the reasons for
          wanting to nominate such nominee as a director, (vi) any material
          interest that the shareholder has in the election of such nominee and
          (vii) the written consent of the nominee to be elected as a director
          of the Company.

52.  The Directors in their capacity as such, shall be entitled to receive
     remuneration and reimbursement of expenses incurred by them in the course
     of carrying out their duties as Directors.

53.  The office of a Director shall be vacated, ipso facto:

     (a)  upon his resignation by written notice signed by him and delivered to
          the Office;

     (b)  if he becomes bankrupt or enters into an arrangement with his
          creditors;

     (c)  if he is or becomes of unsound mind;

     (d)  if he be relieved of his office as provided in Article 50(b) hereof;

     (e)  if he is prevented by applicable law from serving as a director of the
          Company.

     (f)  if the Board of Directors terminate his office according to Section
          231 of the Companies Law;

     (g)  if court order is given according to Section 233 of the Companies Law.

54.  (a)  Subject to the provisions of the Companies Law, no Director shall be
          disqualified by virtue of his office from holding any office, or
          deriving any profit from any other office in the Company or from any
          company in which the Company shall be a shareholder or otherwise
          interested, or from contracting with the Company as a vendor,
          purchaser or otherwise.

     (b)  Transactions entered into by the Company in which an office holder of
          the Company has a personal interest, directly or indirectly, will be
          valid in respect of the Company and the office holder only if approved
          by the Company's Board of Directors and, if such transactions are
          "irregular transactions" as defined in the Companies Law, only if
          approved in accordance with the requirements of the Companies Law.

55.  A Director who has a personal interest in a matter which is brought for
     discussion before the Board of Directors may participate in said
     discussion, provided that he shall neither vote in nor attend discussions
     concerning the approval of the activities or the arrangements. If said
     Director did vote or attend as aforesaid, the approval given to the
     aforesaid activity or arrangements shall be invalid.

                                      -46-
<PAGE>

56.  In the event of one or more vacancies on the Board of Directors, the
     continuing Directors may continue to act as long as the Board of Directors
     consists of at least a majority of the total number of Directors elected.
     However, in the event that the remaining Directors are not a majority of
     the total number of Directors elected, the remaining Director or Directors
     may call for the convening of a General Meeting for the purpose of the
     election of Directors.

57.  Subject to the limitation on the number of Directors as specified in
     Article 49, the Board of Directors may, at any time and from time to time,
     appoint any other person as a Director, whether to fill a vacancy or to add
     to their number. Any Director so appointed shall hold office until the next
     Annual Meeting at which the term of the class to which they have been
     elected expires, and may be re-elected.

58.  In case of any increase in the number of directors, the additional director
     or directors, and in case of any vacancy in the Board of Directors due to a
     death, resignation, removal, disqualification or any other cause, the
     successors appointed according to Article 57 to fill the vacancies shall be
     elected by a majority of the directors then in office.

CONVENING THE BOARD OF DIRECTORS

59.  (a)  The Chairman of the Board of Directors may convene a meeting of the
          Board of Directors at any time.

     (b)  The Board of Directors shall hold a meeting on a specified subject on
          the demand of two Directors, or if the Board of Directors consists of
          up to five Directors one Director;

     (c)  The Chairman of the Board of Directors shall convene the Board of
          Directors upon a demand said in Sub-article (b) of this Article 59 or
          if Section 122(d) to the Companies Law applies, due to a notice or
          report from the General Manager or due to a notice from the Auditor of
          the Company under Section 169 to the Companies Law.

     (d)  If a meeting of the Board of Directors was not convened within 14 days
          after the date of a demand pursuant to Sub-article (b) of this Article
          59, or after the date of a notice or report of the General Manager
          according to Section 122(d) to the Companies Law, or after notice of
          the Auditor under Section 169 to the Companies Law, then each of those
          persons enumerated in Sub-articles (b) and (c) may convene a meeting
          of the Board of Directors, which shall discuss the subject specified
          in the demand, notice or report, as the case may be.

MEETINGS OF THE BOARD OF DIRECTORS AND THEIR CONDUCT

60.  The agenda of a meeting of the Board of Directors shall be set by the
     Chairman of the Board of Directors, and it shall include:

     (1)  subjects determined by the Chairman of the Board of Directors;

     (2)  subjects determined as said in Section 98 to the Companies Law;

     (3)  any subject which a Director or the General Manager requested at a
          reasonable time before the meeting was convened - of the Chairman of
          the Board of Directors to include in the agenda

                                      -47-
<PAGE>

61.  (a)  Notice of a meeting of the Board of Directors shall be delivered to
          all its members at a reasonable time before the meeting, but not later
          than forty eight (48) hours prior to the time set for any such
          meeting,

     (b)  A notice under Sub-article (a) shall be delivered to the Director's
          address that was given to the Company in advance, and in it shall be
          stated the time of the meeting and the place where it will convene, as
          well as reasonable details on all the subjects on the agenda.

62.  Notwithstanding the provision of Article 61 hereto, the Board of Directors
     may - with the consent of all the Directors - convene for a meeting without
     notice.

GENERAL MANAGER

63.  The Board of Directors will appoint one or more persons as General Manager,
     and they will be titled as President or Chief Executive Officer (CEO) or
     Chief Operating Officer (COO). The Board of Directors may from time to time
     remove or discharge him or them from office (subject to the provisions of
     any agreement between any such person and the Company) and appoint another
     or others in his or their place or places.

64.  The Board of Directors may from time to time appoint one or more Vice
     Presidents for certain functions, to carry out duties delegated to him
     (them) by the President, CEO or COO.

65.  To the extent permitted by the Companies Law, the Board of Directors may
     from time to time confer upon and delegate to a President, CEO, COO or
     other Executive Officer then holding office, such authorities and duties of
     the Board of Directors as they may deem fit, and they may delegate such
     authorities and duties for such period and for such purposes and subject to
     such conditions and restrictions which they consider in the bests interests
     of the Company, and they may delegate such authorities and duties without
     waiving the authorities of the Board of Directors with respect thereto and
     it may from time to time revoke, cancel and alter such authorities and
     duties in whole or in part.

66.  The remuneration of a President, CEO, COO or other Executive Officer shall
     be fixed by the Board of Directors, taking into consideration any agreement
     between him and the Company, and it may be in whole or in part, in the form
     of salary, share options, or commissions or profit sharing or a combination
     thereof.

DIRECTOR'S ACTS AND AUTHORITIES

67.  The management of the business of the Company shall be vested in the Board
     of Directors, which may exercise all such powers and do all such acts and
     things as the Company is authorized to exercise and do, and are not hereby
     or by law required to be exercised or done by the Company in a General
     Meeting. The authority conferred on the Board of Directors by this Article
     67 shall be subject to the provisions of the Companies Law, of these
     Articles and any regulation or resolution consistent with these Articles
     adopted from time to time by the Company in a General Meeting, provided,
     however that no such regulation or resolution shall invalidate any prior
     act done by or pursuant to a decision of the Board of Directors which would
     have been valid if such regulation or resolution had not been adopted.

                                      -48-
<PAGE>

68.  The Directors may postpone their meetings and otherwise regulate them as
     they shall deem fit. The quorum for the dispatch of business by the Board
     of Directors shall be determined by the Directors and, if not so
     determined, shall be the majority of the Directors then holding office.

69.  A resolution in writing signed or otherwise approved in writing (by letter,
     telegram, telex, facsimile, electronic mail or otherwise) by all the
     Directors then in office shall be as valid and as effectual as a resolution
     adopted by the Board of Directors at a meeting of the Board of Directors
     duly convened and held.

70.  Members of the Board of Directors, or of any committee designated by the
     Board of Directors, may participate in a meeting of the Board of Directors,
     or of any committee, by means of a telephone conference or similar
     communications equipment by means of which all persons participating in the
     meeting can hear each other, and such participation in a meeting shall
     constitute attendance in person at the meeting.

71.  (a)  The Board of Directors shall elect a Chairman for the meeting and fix
          the term of his office. The CEO shall not serve as Chairman of the
          Board of Directors and vice versa unless the holders of two thirds of
          the voting rights in the Company represented in person or by proxy and
          voting on such resolution at a General Meeting, who are not
          controlling shareholders of the Company or their representatives and
          who are present at the vote, adopt a decision to appoint the Chairman
          of the Board of Directors as the CEO, for a period not exceeding three
          years after the date of the adoption of the decision.

     (b)  In the event that a Chairman was not elected or if the Chairman should
          fail to be present at a meeting fifteen (15) minutes after the time
          set for its convening, the remaining Directors shall elect one of
          those present to be Chairman of the meeting.

     (c)  All questions that arise at meetings of the Board of Directors shall
          be decided by a majority of votes. In the event of a tie vote, the
          Chairman of the Board of Directors shall cast the deciding vote.

72.  Any meeting of the Board of Directors at which a quorum is present shall
     have the authority to exercise all or part of the authorities, powers of
     attorney and discretion invested at such time in the Directors or regularly
     exercised by them.

73.  Subject to the Companies Law, the Board of Directors may delegate its
     authorities in whole or in part to committees as it shall deem fit, and it
     may from time to time revoke such delegation. Any committee so created
     must, in exercising the authorities granted to it, adhere to all the
     instructions of the Board of Directors given from time to time and/or to
     the provisions of the Companies Law.

74.  All acts done bona fide at any meeting of the Board of Directors, or of a
     committee of the Board of Directors or by any person(s) acting as
     Director(s) shall, notwithstanding that it may afterwards be 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 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.

                                      -49-
<PAGE>

75.  The Board of Directors shall cause proper Minutes to be kept of the
     following:

     (a)  the names of all the Directors present at any meeting of the Board of
          Directors and at any meeting of a committee of the Board of Directors;

     (b)  all proceedings and resolutions of General Meetings of the Company,
          Board of Directors' meetings and Committees of the Board of Directors'
          meetings.

     Any Minutes as aforesaid, if purporting to be signed by the Chairman of
     such meeting or by the Chairman of the next succeeding meeting, shall be
     accepted as prima facie evidence of the matters therein recorded.

76.  [Reserved.]

SHAREHOLDERS REGISTERS

77.  Subject to, and in accordance with, the provisions of the Companies Law,
     the Company may cause Shareholder Register to be kept at any place in
     Israel and may cause a copy of the Shareholder Register to be kept outside
     Israel as the Board of Directors may think fit and, subject to all
     applicable legal requirements, the Board of Directors may from time to time
     adopt such rules and procedures as it may think fit in connection with the
     keeping of such registers. In addition to the Shareholders Register, the
     Company shall also keep a Register of Substantial Shareholders as defined
     in the Companies Law.

SECRETARY

78.  The Board of Directors may from time to time appoint a Secretary to the
     Company as it deems fit, and may appoint a temporary Assistant Secretary
     who shall act as Secretary for the term of his appointment.

RIGHTS OF SIGNATURE - STAMP AND SEAL

79.  (a)  Authorization to sign on behalf of the Company and thereby bind it
          shall be made and granted from time to time by the Board of Directors.
          The Company shall have at least one rubber stamp. The Company shall be
          bound by the signature of the aforesaid appointees if appearing
          together after its stamp or printed name.

     (b)  The Board of Directors may provide for a seal. If the Board of
          Directors so provides, it shall also provide for the safe custody
          thereof. Such seal shall not be used except by the authority of the
          Board of Directors and in the presence of the person(s) authorized to
          sign on behalf of the Company, who shall sign every instrument to
          which such seal is affixed.

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DIVIDENDS

80.  Subject to any preferential, deferred, qualified or other rights,
     privileges or conditions attached to any special class of shares with
     regard to dividends, the profits of the Company available for dividend and
     resolved to be distributed shall be applied in payment of dividends upon
     the shares of the Company in proportion to the amount paid up or credited
     as paid up per the nominal value thereon respectively. Unless not otherwise
     specified in the conditions of issuance of the shares, all dividends with
     respect to shares which were not fully paid up within a certain period, for
     which dividends were paid, shall be paid proportionally to the amounts paid
     or credited as paid on the nominal value of the shares during any portion
     of the abovementioned period.

81.  The Board of Directors may declare a dividend to be paid to the
     shareholders according to their rights and interests in the profits, and
     may fix the record date for eligibility and the time for payment.

82.  The Directors may from time to time pay to the shareholders on account of
     the next forthcoming dividend such interim dividends as, in their judgment,
     the position of the Company justifies.

83.  A transfer of shares shall not pass the right to any dividend declared
     thereon after such transfer and before the registration of the transfer.

84.  Notice of the declaration of any dividend, whether interim or otherwise,
     shall be given to the holders of registered shares in the manner
     hereinafter provided.

85.  Unless otherwise directed, any dividend may be paid by check, bank transfer
     or warrant, sent through the post to the registered address of the
     shareholder or person entitled or, in the case of joint registered holders,
     to that one of them first named in the register in respect of the joint
     holding. Every such check shall be made payable to the order of the person
     to whom it is sent. The receipt by the person whose name, at the date of
     the declaration of the dividend, appears in the register of shareholders as
     the owner of any share or, in the case of joint holders, of any one of such
     joint holders, shall be a good discharge to the Company of all payments
     made in respect of such share. All dividends unclaimed for one year after
     having been declared may be invested or otherwise used by the Directors for
     the benefit of the Company until claimed. No unpaid dividend or interest
     shall bear interest as against the Company.

86.  The Board of Directors may determine that, a dividend may be paid, wholly
     or partly, by the distribution of specific assets of the Company or by
     distribution of paid-up shares, debentures or debenture stock or any other
     securities of the Company or of any other companies or in any one or more
     of such ways in the manner and to the extent permitted by the Companies
     Law.

PROHIBITED DISTRIBUTION

87.  (a)  If the Company made a prohibited distribution as defined in the
          Companies Law, then the shareholder must return to the Company
          whatever he received, unless he did not know and did not need to know
          that the distribution carried out was prohibited.

                                      -51-
<PAGE>

     (b)  It is assumed that a shareholder in the Company, who at the time of
          the distribution is not a Director, General Manager or controlling
          member of the Company, did not know and did not need to know that the
          distribution carried out was a prohibited distribution.

88.  If the Company carried out a prohibited distribution, then every person who
     was a Director at the time of the distribution shall be treated as a person
     who thereby committed breach of trust against the Company, unless he proved
     one of the following:

     (1)  that he opposed the prohibited distribution and took all reasonable
          steps to prevent it;

     (2)  that he exercised reasonable reliance on information under which - had
          it not been misleading - the distribution would have permitted;

     (3)  that under the circumstances of the case he did not know and did not
          need to know of the distribution.

MERGER

89.  A merger requires approval by the Board of Directors and by the General
     Meeting, in accordance with the provisions of the Companies Law.

90.  (a)  The Board of Directors of the Company, while considering whether to
          approve the merger, shall discuss and determine taking the Company's
          financial situation into account - whether in its opinion there is a
          reasonable suspicion that in consequence of the merger the merged
          Company will not be able to meet the Company's obligations to its
          creditors.

     (b)  If the Board of Directors determined that there is a suspicion as said
          in Sub-article (a), then it shall not approve the merger.

91.  If each of the Boards of Directors of the merging companies approved the
     merger, then they shall jointly draw up a proposal for the approval of the
     merger (hereafter: merger proposal) and sign it.

92.  (a)  The Company shall deliver the merger proposal to the Companies
          Registrar within three days after the General Meeting was called.

     (b)  The Company shall inform the Companies Registrar of the General
          Meetings decision within three days after the decision was adopted,
          shall inform him that the notice was given to the creditors under
          Section 318 to the Companies Law, and shall also deliver to the
          Registrar a copy of the Court decision under Sections 319 to 321 to
          the Companies Law within three days after the said decision was given.

ACCOUNTS

93.  The Board of Directors shall cause accurate books of account to be kept in
     accordance with the provisions of the Companies Law and of any other
     applicable law. Such books of account shall be kept at the Registered
     Office of the Company, or at such other place or places as the

                                      -52-
<PAGE>

     Board of Directors may think fit, and they shall always be open to
     inspection by all Directors. No shareholder not being a Director shall have
     any right to inspect any account or book or other similar document of the
     Company, except as conferred by law or authorized by the Board of Directors
     of the Company.

94.  At least once in every fiscal year the accounts of the Company shall be
     audited and the correctness of the profit and loss account and balance
     sheet certified by one or more duly qualified auditors.

95.  The appointment, authorities, rights and duties of the auditor(s) of the
     Company shall be regulated by the applicable law.

NOTICES

96.  (a)  A notice or any other document may be served by the Company upon any
          shareholder either personally or by sending it by prepaid mail in
          Israel (by air mail if sent to a place outside Israel, other than the
          U.S. or Canada, or by first class mail if sent within the U.S. or
          Canada) addressed to such shareholder at "his" address as reflected on
          the Company's Shareholders Register or such other address as he may
          have designated in writing for the receipt of notices and other
          documents. Any written notice or other document shall be deemed to
          have been served forty-eight (48) hours after it has been mailed
          (seven (7) days if sent to a place or mailed at a place outside of
          Israel, forty-eight (48) hours if sent within the U.S. or Canada), or
          when actually received by the addressee if sooner than forty-eight
          (48) hours or seven (7) days, as the case may be, after it has been
          mailed, or when actually tendered in person to such shareholder (or to
          the Secretary or the President of the Company, as the case may be);
          provided, however, that such notice or other document mentioned above
          may be sent by facsimile and confirmed by registered mail as
          aforesaid, and such notice shall be deemed to have been given
          twenty-four (24) hours after such facsimile has been sent or when
          actually received by such shareholder (or by the Company), whichever
          is earlier. If a notice is, in fact, received by the addressee, it
          shall be deemed to have been duly served when received,
          notwithstanding that it was defectively addressed or failed in some
          respect to comply with the provisions of this Article.

     (b)  Unless otherwise specified in bearer share warrants, the holders of
          such warrants shall not be entitled to receive notice of any General
          Meeting of the Company, and the Company is under no obligation to give
          notice of General Meetings to a person entitled to a share by virtue
          of its delivery to him, unless he is duly registered as a shareholder.

     (c)  All notices to be given to the shareholders shall, with respect to any
          shares to which persons are jointly entitled, be given to whichever of
          such persons is named first in the Shareholders Register, and any
          notice so given shall be sufficient notice to the holders of such
          shares.

     (d)  Any shareholder whose address is not described in the Shareholders
          Register, and who shall not have designated in writing an address for
          the receipt of notices, shall not be entitled to receive any notice
          from the Company.

                                      -53-
<PAGE>

     (e)  Any notice or other document served upon or sent to any shareholder by
          publication in accordance with these Articles shall, notwithstanding
          that he be then deceased or bankrupt, and whether or not the Company
          has notice of his death or bankruptcy, be deemed to be duly served or
          sent in respect of any shares held by him (either alone or jointly
          with others) until some other person is registered in his stead as the
          holder or joint holder of such shares, and such service or sending
          shall be a sufficient service on or sending to his heirs, executors,
          administrators or assigns and all other persons (if any) interested in
          such share.

     (f)  Where a given number of days' notice, or notice extending over any
          period, is required to be given, the day of service shall be counted
          in such number of days or other period.

RECONSTRUCTION

97.  On any sale of the undertaking of the Company, the Board of Directors or
     the liquidators on a winding-up may, if authorized by a majority vote at a
     meeting of shareholders, accept fully paid up shares, debentures or
     securities of any other company, whether Israeli or foreign, either then
     existing or to be formed, for the purchase, in whole or in part, of the
     property of the Company, and the Board of Directors (if the profits of the
     Company permit), or the liquidators (on a winding-up), may distribute such
     shares or securities, or any other property of the Company, amongst the
     shareholders without realization, or vest the same in trustees for them,
     and the shareholders of the Company at any General Meeting may provide for
     the distribution or appropriation of the cash, shares or other securities,
     benefits or property, in accordance with the legal rights of the
     shareholders or contributors of the Company, and for the valuation of any
     such securities or property at such price and in such manner as the meeting
     may approve, and all holders of shares shall be bound to accept and shall
     be bound by any valuation or distribution so authorized, and waive all
     rights in relation thereto, save only in the case the Company is proposed
     to be, or is, in the course of being wound up, such statutory rights (if
     any) under the provisions of the Statutes as are incapable of being varied
     or excluded by these presents.

INDEMNITY AND INSURANCE OF OFFICERS

98.  The Company may, to the maximum extent permitted by the Companies Law:

     (a)  enter into a contract for the insurance of the liability, in whole or
          in part, of any of its Officers,

     (b)  may indemnify an Officer of the Company post factum;

     (c)  may indemnify an Officer of the Company in advance for the following
          events:

          (i)  Any financial obligation imposed on an Officer in favor of a
               third party by a court judgment, including a compromise judgment
               approved by court (provided that the Company approved the
               compromise in advance) or an arbitrator's award approved by court
               (provided that it was given pursuant to arbitration agreed to by
               the Company in advance), for an act or omission performed by an
               Officer in his capacity as an Officer; and

                                      -54-
<PAGE>

          (ii) reasonable legal expenses, including attorneys' fees, expended by
               or charged to an Officer or adjudicated against an Officer by a
               court in a proceeding commenced against an Officer by the Company
               or on its behalf or by another person, or in a criminal charge
               from which an Officer was acquitted, or in a criminal charge that
               does not require intent, in which an Officer was convicted, all
               for an act or omission performed in his capacity as an Officer.

               Such indemnity shall apply in certain foreseeable events and up
               to a feasible amount under the circumstances, as determined by
               the Board of Directors; and

     (d)  exempt an Officer prospectively from liability, in whole or in part,
          for damage resulting from a breach of his or her duty of care toward
          the Company.

          WINDING-UP

          99.  If the Company shall be wound up, whether voluntarily or
               otherwise, the liquidators may, subject to the provision of the
               Statutes, divide among the shareholders in specie any part of the
               assets of the Company and may, with like sanction, vest any part
               of the assets of the Company in trustees upon such trusts, for
               the benefit of the shareholders, as the liquidators with like
               sanction shall think fit.

          BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS

          100. Notwithstanding any other provision of these Articles, the
               Company shall not engage in any business combination with any
               interested shareholder for a period of three years following the
               time that such shareholder became an interested shareholder,
               unless:

               (a)  prior to such time the Board of Directors of the Company
                    approved either the business combination or the transaction
                    which resulted in the shareholder becoming an interested
                    shareholder, or

               (b)  upon consummation of the transaction which resulted in the
                    shareholder becoming an interested shareholder, the
                    interested shareholder owned at least 85% of the voting
                    shares of the Company outstanding at the time the
                    transaction commenced, excluding for purposes of determining
                    the number of shares outstanding those shares owned (i) by
                    persons who are directors and also officers and (ii)
                    employee share plans in which employee participants do not
                    have the right to determine confidentially whether shares
                    held subject to the plan will be tendered in a tender or
                    exchange offer, or

               (c)  at or subsequent to such time the business combination is
                    approved by the Board of Directors and authorized at a
                    General Meeting, and not by written consent, by the
                    affirmative vote of at least 66 2/3% of the outstanding
                    voting shares which is not owned by the interested
                    shareholder.

               (d)  A shareholder becomes an interested shareholder
                    inadvertently and (i) as soon as practicable diverts itself
                    of ownership of sufficient shares so that the shareholder
                    ceases to be an interested shareholder; and (ii) would not,
                    at any time within the three - year period immediately prior
                    to a business combination between the Company and such
                    shareholder, have been an interested shareholder but for the
                    inadvertent acquisition of ownership; or

                                      -55-
<PAGE>

          (e)  The business combination is proposed prior to consummation or
               abandonment of and subsequent to the earlier of the public
               announcement or the notice required hereunder of a proposed
               transaction which (i) constitutes one of the transactions
               described in the second sentence of this paragraph; (ii) is with
               or by a person who either was not an interested shareholder
               during the previous three years or who became an interested
               shareholder with the approval of the Company's Board of
               Directors; and (iii) is approved or not opposed by a majority of
               the members of the Boards of Directors then in office who were
               directors prior to any person becoming an interested shareholder
               during the previous three years or were recommended for election
               or were elected to succeed such directors by a majority of such
               directors. The proposed transactions referred to in the preceding
               sentences are limited to (x) a merger or consolidation of Company
               (except for merger in respect of which no vote of shareholders of
               the Company is required according to the Companies Law); (y) a
               sale, lease, exchange, mortgage, pledge, transfer or other
               disposition (in one transaction or a series of transactions),
               whether as part of a dissolution or otherwise of assets of the
               Company or of any direct or indirect majority-owned subsidiary of
               the Company (other than to any direct or indirect wholly owned
               subsidiary or to the Company) having an aggregate market value
               equal to 50% or more of either that aggregate market value of all
               of the assets of the Company determined on a consolidated basis
               or the aggregate market of all the outstanding shares of the
               Company; or (z) a proposed tender or exchange offer for 50% or
               more of the outstanding voting shares of the Company. The Company
               shall give not less than 20 days notice to all interested
               shareholders prior to the consummation of any of the transaction
               described in clause (x) or (y) of the second sentence of this
               paragraph.

          As used in this Article only, the term:

               (1)  "affiliate" means a person that directly, or indirectly
                    through one or more intermediaries, controls, is controlled
                    by or is under common control with another person.

               (2)  "associate" when used to indicate a relationship with any
                    person, means (I) any corporation, partnership,
                    unincorporated association or other entity of which such
                    person is a director, officer or partner or is, directly or
                    indirectly, the owner of 20% or more of any class of voting
                    shares, (ii) any trust or other estate in which such person
                    has at least a 20% beneficial interest or as to which such
                    person serves as trustee or in a similar fiduciary capacity,
                    and (iii) any relative or spouse of such person, or any
                    relative of such spouse, who has the same residence as such
                    person.

                                      -56-
<PAGE>

               (3)  "business combination" when used in reference to the Company
                    and any interested shareholder of the Company, means:

                    (i)  any merger or consolidation of the Company or any
                         direct or indirect majority owned subsidiary of the
                         Company with (A) an interested shareholder, or (B) with
                         any other corporation, partnership, unincorporated
                         association or other entity if the merger or
                         consolidation is caused by an interested shareholder
                         and as a result of such merger or consolidation
                         Sub-article (a) of this Article 100 is not applicable
                         to the surviving entity;

                                      -57-
<PAGE>

                    (ii) any sale, lease, exchange, mortgage, pledge, transfer
                         or other disposition (in one transaction or a series of
                         transactions), except proportionately as a shareholder
                         of such Company to or with the interested shareholder,
                         whether as part of a dissolution or otherwise, of
                         assets of the Company or of any direct or indirect
                         majority owner subsidiary of the Company, which assets
                         have an aggregate market value equal to 10% or more of
                         either the aggregate market value of all of the assets
                         of the Company determined on a consolidated basis or
                         the aggregate market value of all of the outstanding
                         shares of the Company.

                   (iii) any transaction which results in the issuance or
                         transfer by the Company or by any direct or indirect
                         majority-owned subsidiary of the Company of any shares
                         of the Company or of such subsidiary to the interested
                         shareholder, except (A) pursuant to the exercise,
                         exchange or conversion of securities exercisable for or
                         convertible into shares of the Company or any such
                         subsidiary, which securities were outstanding prior to
                         the time that the interested shareholder became such,
                         (B) pursuant to a dividend or distribution paid or
                         made, or the exercise, exchange or conversion of
                         securities exercisable for, exchangeable for or
                         convertible into shares of the Company or any such
                         subsidiary, which security is distributed pro rata to
                         all holders of a class or series of shares of the
                         Company subsequent to the time the interested
                         shareholder became such, (C) pursuant to an exchange
                         offer by the Company to purchase shares made on the
                         same terms to all holders of said shares or (D) any
                         issuance or transfer of shares by the Company;
                         provided, that in no case under (B)-(D) above shall
                         there be an increase in the interested shareholder's
                         proportionate share of the shares of any class or
                         series of the Company or of the voting shares of the
                         Company.

                    (iv) any transaction involving the Company or any direct or
                         indirect majority owned subsidiary of the Company which
                         has the effect directly or indirectly of increasing the
                         proportionate share of the shares of any class or
                         series or securities convertible into the shares of any
                         class or series of the Company or of any such
                         subsidiary which is owned by the interested shareholder
                         except as a result of immaterial changes due to
                         fractional share adjustments or as a result of any
                         purchase or redemption of any shares not caused,
                         directly or indirectly, by the interested shareholder;
                         or

                    (v)  any receipt by the interested shareholder of the
                         benefit, directly or indirectly (except proportionately
                         as a shareholder of such Company), of any loans,
                         advances, guarantees, pledges or any other financial
                         benefits (other than those expressly permitted in
                         subparagraphs (i)-(iv) above) provided by or through
                         the Company or any direct or indirect majority owned
                         subsidiary.

                                      -58-
<PAGE>

               (4)  "control" including the term "controlling," "controlled by"
                    and "under common control with," means the possession,
                    directly or indirectly, of the power to direct or cause the
                    direction of the management and policies of a person,
                    whether through the ownership of voting shares, by contract
                    or otherwise. A person who is the owner of 20% or more of
                    the outstanding voting shares of any company, partnership,
                    unincorporated association or other entity shall be presumed
                    to have control of such entity. Notwithstanding the
                    foregoing, a presumption of control shall not apply where
                    such person holds voting shares in good faith and not for
                    the purpose of circumventing this Article as an agent, bank,
                    broker, nominee, custodian or trustee for one or more owners
                    who do not individually or as a group have control of such
                    entity.

               (5)  "interested shareholder" means any person (other than the
                    Company and any direct or indirect majority owner subsidiary
                    of the Company) that (i) is the owner of 15% or more of the
                    outstanding voting shares of the Company, or (ii) is an
                    affiliate or associate of the Company and was the owner of
                    15% or more of the outstanding voting shares of the Company
                    at any time within the three year period immediately prior
                    to that date on which it is sought to be determined whether
                    such person is an interested shareholder and the affiliates
                    and associates of such person, or (iii) any person whose
                    ownership of shares in excess of the 15% limitation set
                    forth herein is the result of action taken solely by the
                    Company provided that such person shall be an interested
                    shareholder if thereafter such person acquires additional
                    voting shares of the Company, except as a result of further
                    corporate action not caused, directly or indirectly, by such
                    person. For the purpose of determining whether a person is
                    an interested shareholder, the voting shares of the Company
                    deemed to be outstanding shall include shares deemed to be
                    owned by the person through application of paragraph (8) of
                    this Sub-article but shall not include any other unissued
                    shares of the Company which may be issuable pursuant to any
                    agreement, arrangement or understanding, or upon exercise of
                    conversion rights, warrants or options, or otherwise.

               (6)  "person" means any individual, company, partnership,
                    unincorporated association or other entity.

               (7)  "share" means with respect to the Company shares of its
                    capital and with respect to any other entity any equity
                    interest.

               (8)  "voting shares" means any class or series entitled to vote
                    generally in the election of directors of the Company and
                    generally.

               (9)  "owner" including the terms "own" and "owned," when used
                    with respect to any share, means a person that individually
                    or with or through any of its affiliates or associates:

                    (i)  beneficially owns such share, directly or indirectly;
                         or

                    (ii) has (A) the right to acquire such share (whether

                                      -59-
<PAGE>

                        such right is exercisable immediately or only after the
                        passage of time) pursuant to

                        any  agreement, arrangement or understanding or upon the
                        exercise of conversion rights, warrants or options, or
                        otherwise, provided, however, that a person shall not
                        be deemed the owner of share tendered pursuant to a
                        tender or exchange; or (B) the right to vote such share
                        pursuant to any agreement, arrangement or
                        understanding; provided, however, that a person shall
                        not be deemed the owner of any share because of such
                        person's right to vote such share if the agreement,
                        arrangement, or understanding to vote such share arises
                        solely from a revocable proxy or consent given in
                        response to a proxy or consent solicitation made to 10
                        or more persons: or

                  (iii) has any agreement, arrangement or understanding for
                        the purpose of acquiring, holding, voting (except
                        voting pursuant to a revocable proxy or consent as
                        described in item (b) of clause (ii) of this paragraph)
                        or disposing of such share with any other person that
                        beneficially owns or whose affiliates or associates
                        beneficially own, directly or indirectly, such share.

**********************

                                      -60-
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                                   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.


                                        CLICKSOFTWARE TECHNOLOGIES LTD.
                                        (Registrant)

                                        By: /s/ Shmuel Arvatz
                                            ------------------------------------
                                            Shmuel Arvatz
                                            Executive Vice President and
                                            Chief Financial Officer

Date:  August 13, 2003


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