Document:

BYLAWS

                                       OF

                        PINNACLE WEST CAPITAL CORPORATION
                        (AMENDED AS OF DECEMBER 15, 1999)

                            I. REFERENCES; SENIORITY

     1.01. REFERENCES.  Any reference herein made to law will be deemed to refer
to the law of the  State of  Arizona,  including  any  applicable  provision  or
provisions of Chapters 1-17 and Chapter 23 of Title 10, Arizona Revised Statutes
(or its successor), as at any given time in effect. Any reference herein made to
the Articles will be deemed to refer to the  applicable  provision or provisions
of the Articles of Incorporation of the Company,  and all amendments thereto, as
at any  given  time  on file  with  the  Arizona  Corporation  Commission  (this
reference  to that  Commission  being  intended to include any  successor to the
incorporating  and related  functions  being performed by that Commission at the
date of the initial adoption of these Bylaws).

     1.02. SENIORITY. Except as indicated in Part X of these Bylaws, the law and
the Articles (in that order of  precedence)  will in all respects be  considered
senior and superior to these Bylaws,  with any  inconsistency  to be resolved in
favor of the law and the Articles (in that order of precedence),  and with these
Bylaws to be deemed  automatically  amended from time to time to  eliminate  any
such inconsistency which may then exist.

     1.03.  SHAREHOLDERS  OF RECORD.  Except as  otherwise  required  by law and
subject to any procedure  established by the Company pursuant to Arizona Revised
Statutes  Section  10-723  (or any  comparable  successor  provision),  the word
"shareholder"  as used herein shall mean one who is a holder of record of shares
in the Company.

                            II. SHAREHOLDERS MEETINGS

     2.01. ANNUAL MEETINGS.  An annual meeting of shareholders shall be held for
the election of directors at such date, time and place, either within or without
the  State of  Arizona,  as may be  designated  by  resolution  of the  Board of
Directors from time to time. Any other proper  business may be transacted at the
annual  meeting.  A special  meeting may be called and held in lieu of an annual
meeting  pursuant  to the  provisions  of  Section  2.02  below,  and  the  same
proceedings (including the election of directors) may be conducted thereat as at
a regular  meeting.  Any  director  elected  at any annual  meeting,  or special
meeting in lieu of an annual meeting, will continue in office until the election
of his or her successor,  subject to his or her (a) earlier resignation pursuant
to Section 6.01 below,  (b) removal pursuant to Section 3.13 below, or (c) death
or disqualification.

     2.02.  SPECIAL  MEETINGS.  Except as  otherwise  required  by law,  special
meetings of the  shareholders  may be held  whenever and wherever  called by the
Chairman of the Board,  the President,  or a majority of the Board of Directors,
but such  special  meetings  may not be called by any other  person or  persons.
Business  transacted at any special meeting of shareholders  shall be limited to
the purposes stated in the notice.
<PAGE>
     2.03.  NOTICE.  Notice of any meeting of the shareholders  will be given as
provided by law to each  shareholder  entitled to vote at such  meeting  and, if
required by law, to each other  shareholder of the Company.  Any such notice may
be waived as provided by law.

     2.04.  RIGHT TO VOTE.  For each meeting of the  shareholders,  the Board of
Directors  will fix in advance a record  date as  contemplated  by law,  and the
shares of stock and the shareholders  "entitled to vote" (as that or any similar
term is herein used) at any meeting of the shareholders will be determined as of
the applicable record date. The Secretary (or in his or her absence an Assistant
Secretary)  will see to the making and production of any record of  shareholders
entitled to vote or otherwise  entitled to notice of shareholders  meetings,  in
either case which is required by law.  Any voting  entitlement  may be exercised
through  proxy,  or in such other  manner as  specifically  provided  by law, in
accordance  with the  applicable  law.  In the event of  contest,  the burden of
proving  the  validity of any  undated or  irrevocable  proxy will rest with the
person  seeking to  exercise  the same.  A  telegram,  cablegram,  or  facsimile
appearing  to have  been  transmitted  by a  shareholder  (or by his or her duly
authorized attorney-in-fact) or other means of voting by telephone or electronic
transmission  may be accepted as a  sufficiently  written and executed  proxy if
otherwise permitted by law.

     2.05. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.

          (a)  Annual Meetings of  Shareholders.  (1) Nominations of persons for
               election  to the  Board  of  Directors  of the  Company  and  the
               proposal of business to be considered by the  shareholders may be
               made at an annual  meeting of  shareholders  only (i) pursuant to
               the Company's notice of meeting (or any supplement thereto), (ii)
               by or at the  direction of the Board of Directors or (iii) by any
               shareholder  of the Company who was a shareholder at the time the
               respective  notice provided for in this Section 2.05 is delivered
               to the  Secretary of the Company,  who is entitled to vote at the
               meeting and who complies with the notice  procedures set forth in
               this Section 2.05.

               (2) For  nominations  or other  business to be  properly  brought
               before an annual  meeting  by a  shareholder  pursuant  to clause
               (iii) of paragraph  (a)(1) of this Section 2.05, the  shareholder
               must have given timely notice thereof in writing to the Secretary
               of the  Company  and any such  proposed  business  other than the
               nominations  of persons for  election  to the Board of  Directors
               must  constitute a proper matter for  shareholder  action.  To be
               timely, a shareholder  notice shall be delivered to the Secretary
               at the principal  executive offices of the Company not later than
               the close of business  (a) with respect to business to be brought
               before the meeting,  on the ninetieth day or not earlier than the
               close of business on the one hundred  twentieth  day prior to the
               first   anniversary  of  the  preceding   year's  annual  meeting
               (provided, however, that in the event that the date of the annual
               meeting  has been  changed  by more  than  thirty  days from such
               anniversary  date, notice by the shareholder must be so delivered
               not later than the close of business  on the tenth day  following
               the day on which public  announcement of the date of such meeting
               was mailed or public

                                       -2-
<PAGE>
               disclosure  of the  annual  meeting  was  made,  whichever  first
               occurs),  and (b) with  respect to  nominations  of persons to be
               elected to the Board of Directors,  the one-hundred and eightieth
               day prior to the date of the meeting at which the  election is to
               occur.   In  no  event  shall  the  public   announcement  of  an
               adjournment or postponement  of an annual meeting  commence a new
               time  period  (or  extend  any time  period)  for the giving of a
               shareholder's  notice  as  described  above.  Such  shareholder's
               notice  shall  set  forth:   (a)  as  to  each  person  whom  the
               shareholder proposes to nominate for election as a director,  all
               information  relating  to  such  person  that is  required  to be
               disclosed in  solicitations  of proxies for election of directors
               in an election contest,  or is otherwise  required,  in each case
               pursuant to Regulation 14A under the  Securities  Exchange Act of
               1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder
               (and such  person's  written  consent to being named in the proxy
               statement  as a nominee and to serving as a director if elected);
               (b) as to any other  business  that the  shareholder  proposes to
               bring before the  meeting,  a brief  description  of the business
               desired  to be  brought  before  the  meeting,  the  text  of the
               proposal  or  business  (including  the  text of any  resolutions
               proposed for  consideration  and, in the event that such business
               includes  a  proposal  to amend the  Bylaws of the  Company,  the
               language for the proposed amendment),  the reasons for conducting
               such business at the meeting,  and any material  interest in such
               business of such shareholder and the beneficial owner, if any, on
               whose behalf the proposal is made; and (c) as to the  shareholder
               giving the  notice and the  beneficial  owner,  if any,  on whose
               behalf  the  nomination  or  proposal  is made,  (i) the name and
               address  of such  shareholder,  as they  appear on the  Company's
               books, and of such beneficial owner, (ii) the class and number of
               shares  of  capital   stock  of  the   Company   that  are  owned
               beneficially   and  of  record  by  such   shareholder  and  such
               beneficial owner, (iii) a representation  that the shareholder is
               a holder of record of stock of the  Company  entitled  to vote at
               such  meeting  and intends to appear in person or by proxy at the
               meeting  to  propose  such  business  or  nomination,  and (iv) a
               representation  whether the shareholder or the beneficial  owner,
               if any, intends or is part of a group that intends (a) to deliver
               a proxy statement and/or form of proxy to holders of at least the
               percentage of the Company's outstanding capital stock required to
               approve or adopt the  proposal  or elect the  nominee  and/or (b)
               otherwise to solicit proxies from shareholders in support of such
               proposal or  nomination.  The  Company  may require any  proposed
               nominee to furnish such other  information  as it may  reasonably
               require to determine the eligibility of such proposed  nominee to
               serve as a director of the Company.

          (b)  Special  Meetings of  Shareholders.  Only such business  shall be
               conducted at a special meeting of shareholders as shall have been
               brought  before the meeting  pursuant to the Company's  notice of
               meeting.

                                       -3-
<PAGE>
          (c)  General.  (1) Only such persons who are  nominated in  accordance
               with the  procedures  set  forth in this  Section  2.05  shall be
               eligible  to be  elected  at an  annual  or  special  meeting  of
               shareholders  of the Company to serve as directors  and only such
               business shall be conducted at a meeting of shareholders as shall
               have been  brought  before  the  meeting in  accordance  with the
               procedures  set forth in this Section  2.05.  Except as otherwise
               provided by law, the Chairman of the meeting shall have the power
               and duty (a) to determine  whether a  nomination  or any business
               proposed to be brought  before the meeting was made or  proposed,
               as the case may be, in accordance  with the  procedures set forth
               in this  Section  2.05  (including  whether  the  shareholder  or
               beneficial  owner,  if any,  on whose  behalf the  nomination  or
               proposal is made solicited (or is part of a group that solicited)
               or did not so solicit,  as the case may be, proxies in support of
               such  shareholder's  nominee or proposal in compliance  with such
               shareholder's  representation as required by clause (a)(2)(c)(iv)
               of this  Section  2.05)  and (b) if any  proposed  nomination  or
               business was not made or proposed in compliance with this Section
               2.05, to declare that such  nomination  shall be  disregarded  or
               that such proposed business shall not be transacted.

               (2) For  purposes of this  Section  2.05,  "public  announcement"
               shall mean  disclosure  in a press  release  reported  by the Dow
               Jones News Service,  Associated Press or comparable national news
               service or in a document  publicly  filed by the Company with the
               Securities and Exchange  Commission pursuant to Section 13, 14 or
               15(d) of the Exchange Act.

               (3)  Notwithstanding  the  foregoing  provisions  of this Section
               2.05,  a  shareholder  shall  also  comply  with  all  applicable
               requirements  of the Exchange  Act and the rules and  regulations
               thereunder  with respect to the matters set forth in this Section
               2.05.  Nothing in this Section 2.05 shall be deemed to affect any
               rights (a) of shareholders  to request  inclusion of proposals in
               the  Company's  proxy  statement  pursuant  to Rule  14a-8 of the
               Exchange  Act or (b) of the  holders of any  series of  Preferred
               Stock to elect directors pursuant to any applicable provisions of
               the Articles.

     2.06. RIGHT TO ATTEND.  Except only to the extent of persons  designated by
the Board of  Directors  or the Chairman of the meeting to assist in the conduct
of the  meeting (as  referred to in Sections  2.08 and 2.09 below) and except as
otherwise  permitted  by the Board or such  Chairman,  the  persons  entitled to
attend any meeting of shareholders may be confined to (i) shareholders  entitled
to vote  thereat  and other  shareholders  entitled to notice of the meeting and
(ii) the persons upon whom  proxies  valid for purposes of the meeting have been
conferred or their duly appointed  substitutes  (if the related proxies confer a
power of substitution);  provided,  however,  that the Board of Directors or the
Chairman of the  meeting  may  establish  rules  limiting  the number of persons
referred  to in  clause  (ii) as being  entitled  to  attend  on  behalf  of any
shareholder so as to preclude such an excessively  large  representation of such
shareholder  at the meeting as, in the  judgment of the Board or such  Chairman,
would be unfair to other  shareholders  represented  at the meeting or be unduly
disruptive of the orderly conduct of

                                      -4-
<PAGE>
business  at  such  meeting  (whether  such  representation  would  result  from
fragmentation of the aggregate number of shares held by such shareholder for the
purpose of conferring  proxies,  from the naming of an  excessively  large proxy
delegation by such shareholder or from employment of any other device). A person
otherwise  entitled to attend any such  meeting will cease to be so entitled if,
in the judgment of the Chairman of the meeting,  such person engages  thereat in
disorderly  conduct  impeding the proper conduct of the meeting in the interests
of all shareholders as a group.

     2.07.  QUORUM.  Except as otherwise  provided by law, the Articles or these
Bylaws,  at each meeting of  shareholders  the presence in person or by proxy of
the holders of a majority  in voting  power of the  outstanding  shares of stock
entitled to vote at the meeting shall be necessary and  sufficient to constitute
a quorum.

     2.08.  ELECTION  INSPECTORS.  The Board of  Directors,  in  advance  of any
shareholders  meeting may appoint an election  inspector or inspectors to act at
such  meeting  (and  any  adjournment  thereof).  If an  election  inspector  or
inspectors  are not so  appointed,  the Chairman of the meeting may or, upon the
request  of  any  person  entitled  to  vote  at the  meeting  will,  make  such
appointment.  If any person appointed as an inspector fails to appear or to act,
a substitute may be appointed by the Chairman of the meeting. If appointed,  the
election  inspector or inspectors (acting through a majority of them if there be
more  than  one)  will   determine  the  number  of  shares   outstanding,   the
authenticity,  validity  and  effect of  proxies,  the  credentials  of  persons
purporting to be  shareholders  or persons named or referred to in proxies,  and
the number of shares  represented  at the  meeting in person and by proxy;  they
will  receive and count  votes,  ballots and  consents  and announce the results
thereof; they will hear and determine all challenges and questions pertaining to
proxies and  voting;  and, in  general,  they will  perform  such acts as may be
proper  to  conduct   elections  and  voting  with  complete   fairness  to  all
shareholders. No such election inspector need be a shareholder of the Company.

     2.09.  ORGANIZATION AND CONDUCT OF MEETINGS. Each shareholders meeting will
be called to order and thereafter  chaired by the Chairman of the Board if there
then is one;  or,  if not,  or if the  Chairman  of the  Board is  absent  or so
requests,  then by the  President;  or if both the Chairman of the Board and the
President  are  unavailable,  then by such other  officer of the Company or such
shareholder as may be appointed by the Board of Directors.  The Secretary (or in
his or her absence an Assistant  Secretary) of the Company will act as secretary
of  each  shareholders  meeting;  if  neither  the  Secretary  nor an  Assistant
Secretary is in  attendance,  the Chairman of the meeting may appoint any person
(whether a  shareholder  or not) to act as secretary  thereat.  After  calling a
meeting to order,  the  Chairman  thereof may require  the  registration  of all
shareholders  intending to vote in person,  and the filing of all proxies,  with
the election inspector or inspectors, if one or more have been appointed (or, if
not,  with the  secretary of the  meeting).  After the  announced  time for such
filing of proxies has ended,  no further  proxies or changes,  substitutions  or
revocations  of proxies will be  accepted.  If  directors  are to be elected,  a
tabulation of the proxies so filed will, if any person  entitled to vote in such
election so requests, be announced at the meeting (or adjournment thereof) prior
to the closing of the election polls.

     Absent a showing of bad faith on his or her part, the Chairman of a meeting
will,  among other  things,  have  absolute  authority to determine the order of
business to be conducted at such

                                      -5-
<PAGE>
meeting  and to  establish  rules  for,  and  appoint  personnel  to assist  in,
preserving  the orderly  conduct of the business of the meeting  (including  any
informal,  or question and answer,  portions  thereof).  Rules,  regulations  or
procedures  regarding the conduct of the business of a meeting,  whether adopted
by the Board of Directors  or  prescribed  by the  Chairman of the meeting,  may
include,  without limitation,  the following: (i) the establishment of an agenda
or order of business for the meeting;  (ii) rules and procedures for maintaining
order at the  meeting  and the safety of those  present;  (iii)  limitations  on
attendance at or  participation  in the meeting to shareholders of record of the
Company, their duly authorized and constituted proxies (subject to Section 2.06)
or such other  persons as the  Chairman of the  meeting  shall  determine;  (iv)
restrictions  on entry to the meeting after the time fixed for the  commencement
thereof;  and (v)  limitations  on the time allotted to questions or comments by
participants.  Unless and to the extent  determined by the Board of Directors or
the Chairman of the meeting,  meetings of shareholders  shall not be required to
be  held  in  accordance  with  the  rules  of  parliamentary   procedure.   Any
informational  or other informal  session of  shareholders  conducted  under the
auspices of the Company after the conclusion of or otherwise in conjunction with
any  formal  business  meeting of the  shareholders  will be chaired by the same
person who chairs the formal meeting,  and the foregoing authority on his or her
part will extend to the conduct of such informal session.

     2.10.  VOTING.  The number of shares  voted on any matter  submitted to the
shareholders  which is required to constitute  their action  thereon or approval
thereof will be determined in accordance with applicable law, the Articles,  and
these Bylaws, if applicable.  No ballot or change of vote will be accepted after
the polls have been declared  closed  following the ending of the announced time
for voting.

     2.11.  SHAREHOLDER  APPROVAL OR  RATIFICATION.  The Board of Directors  may
submit any contract or act for approval or ratification at any duly  constituted
meeting of the shareholders,  the notice of which either includes mention of the
proposed  submittal  or is waived as provided in Section  2.03 above.  Except as
otherwise  required by law (e.g.,  Arizona Revised Statutes Section 10-863),  if
any  contract or act so  submitted  is approved or ratified by a majority of the
votes cast thereon at such  meeting,  the same will be valid and as binding upon
the Company and all of its  shareholders as it would be if approved and ratified
by each and every shareholder of the Company.

     2.12.  CONTROL  SHARE ACT. The  provisions of Section  10-2721  through and
including Section 10-2727 of the Arizona Revised Statutes shall not apply to the
Company.

     2.13.  ADJOURNMENTS.  Any meeting of shareholders,  annual or special,  may
adjourn  from time to time to  reconvene  at the same or some other  place,  and
notice  need not be given of any such  adjourned  meeting  if the time and place
thereof are announced at the meeting at which the  adjournment is taken.  At the
adjourned  meeting the Company may transact  any  business  that might have been
transacted  at the original  meeting.  If the  adjournment  is for more than one
hundred and twenty days, or if after the  adjournment a new record date is fixed
for the adjourned  meeting,  notice of the  adjourned  meeting shall be given to
each shareholder of record entitled to vote at the meeting.

                                      -6-
<PAGE>
                             III. BOARD OF DIRECTORS

     3.01.  MEMBERSHIP.  The Board of Directors of the corporation shall consist
of not less then  nine (9) nor more than  twenty-one  (21)  shareholders  of the
Company  or of any parent  corporation  thereof  (except  that it shall not be a
requirement  that any member of the initial  Board of Directors be a shareholder
of the Company or of any parent corporation thereof),  and shall be divided into
three classes in the manner  provided in the Articles  (Art.  Fifth).  The Board
will have the  exclusive  power to  increase  or  decrease  its size within such
limits.  Any  vacancy  occurring  in the  Board,  whether  by  reason  of death,
resignation,  disqualification  or otherwise,  may be filled by the directors as
contemplated  by law and as  provided in the  Articles  (Art.  Fifth).  Any such
increase  in the size of the  Board,  and the  filling  of any  vacancy  created
thereby,  will require action by a majority of the whole membership of the Board
as comprised immediately before such increase.

     3.02.  QUALIFICATIONS.  In order to qualify as a director, a person must be
the owner of one or more  shares of the  capital  stock of the Company or of any
parent  corporation  thereof  at the  time of  assuming  office  (except  as may
otherwise  be  provided  in these  Bylaws  or in the  Articles)  and for so long
thereafter as such person remains in office. A person will cease to qualify as a
director if he or she (i) is in good faith determined by a majority of the other
directors  then in office to be  physically  or mentally  incapable of competent
performance  as a  director  for  a  period,  starting  with  inception  of  the
incapacity, that has extended or is likely to extend for more than six months or
(ii) has  failed to attend  six  successive  regular  meetings  of the Board (as
determined in accordance  with Section 3.03 below) unless and to the extent such
failure is waived by a majority of the other directors then in office;  however,
disqualification  pursuant  to  clause  (i) or (ii) of this  sentence  will  not
preclude the subsequent  election or appointment of such person as a director by
the  shareholders  or the  Board  if a  majority  of  the  directors  in  office
immediately  prior to the  submission of such person for election or appointment
shall determine that his or her prior  incapacity or principal  reason for prior
non-attendance  no longer  exists.  A person will not  qualify  for  election or
appointment as a director,  whether  initially or on re-election  and whether by
the  shareholders  at their  annual  meeting  or by the  Board of  Directors  as
contemplated  in Section 3.01 above, if such person's 70th birthday occurs on or
has occurred  before the date of such election,  appointment or  re-election.  A
person who has been a full-time  employee of the Company  within  twelve  months
prior to the date of any election will not qualify for election as a director on
that date unless he or she then  remains a full-time  employee of the Company or
unless the Board of  Directors  specifically  authorizes  the  election  of such
person  (but it is not  intended  that  any  such  authorization  will  extend a
person's service on the Board beyond the age limitation set out in the preceding
sentence). A person who has qualified by age or employment status for his or her
most recent election as a director may serve  throughout the term for which such
person was elected,  notwithstanding  the occurrence of his or her 70th birthday
or  cessation of full-time  employment  by the Company  between the date of such
election and the end of such term,  subject,  however,  to his or her  otherwise
remaining qualified for such office.

     3.03. REGULAR MEETINGS.  A regular annual meeting of the directors is to be
held as soon as practicable  after the  adjournment of each annual  shareholders
meeting either at the place of the  shareholders  meeting or at such other place
as the directors  elected at the shareholders  meeting may have been informed of
at or before the time of their election. Regular meetings,

                                      -7-
<PAGE>
other than the annual ones,  may be held at such intervals at such places and at
such times as the Board of Directors may provide.

     3.04.  SPECIAL MEETINGS.  Special meetings of the Board of Directors may be
held  whenever  and  wherever  called  for by the  Chairman  of the  Board,  the
President  or the number of  directors  which would be required to  constitute a
quorum.

     3.05.  NOTICE.  No notice need be given of regular meetings of the Board of
Directors.  Notice of the time and place (but not necessarily the purpose or all
of the purposes) of any special meeting will be given to each director in person
or  by  telephone,  or  via  mail,  telegram,  facsimile,  or  other  electronic
transmission addressed in the manner appearing on the Company's records.  Notice
to any director of any such special meeting will be deemed given sufficiently in
advance when (i) if given by mail,  the same is  deposited in the United  States
mail at least four days before the meeting date, with postage  thereon  prepaid,
(ii) if given by telegram,  the same is delivered  to the  telegraph  office for
fast transmittal at least 48 hours prior to the convening of the meeting,  (iii)
if given by facsimile or other electronic transmission,  the same is received by
the  director or an adult  member of his or her office  staff or  household,  at
least 24 hours prior to the  convening  of the  meeting,  or (iv) if  personally
delivered or given by telephone, the same is handed, or the substance thereof is
communicated  over the telephone to the director or to an adult member of his or
her office staff or  household,  at least 24 hours prior to the convening of the
meeting.  Any such notice may be waived as provided by law. No call or notice of
a meeting of  directors  will be  necessary  if each of them  waives the same in
writing or by attendance.  Any meeting,  once properly called and noticed (or as
to which call and notice have been waived as aforesaid) and at which a quorum is
formed,  may be  adjourned  to another  time and place by a majority of those in
attendance.

     3.06.  QUORUM;  VOTING.  A quorum for the  transaction  of  business at any
meeting or  adjourned  meeting of the  directors  will  consist of a majority of
those then in office. Any matter submitted to a meeting of the directors will be
resolved by a majority of the votes cast thereon,  except as otherwise  required
by these Bylaws  (ss.ss.  3.01 and 3.02 above and ss. 3.07 below),  by law or by
any applicable  Article.  However, in case of an equality of votes, the Chairman
of the meeting will have a second or deciding  vote.  Where action by a majority
of the whole  membership is required,  such requirement will be deemed to relate
to a majority  of the  directors  in office at the time the action is taken.  In
computing any such majority, whether for purposes of determining the presence of
a quorum  or the  adequacy  of the vote on any  proposed  action,  any  unfilled
vacancies at the time  existing in the  membership of the Board will be excluded
from the computation.

     3.07.  EXECUTIVE  COMMITTEE.  The Board of  Directors  may,  by  resolution
adopted by a majority of the whole  Board,  name three or more of its members as
an Executive Committee.  Such Executive Committee will have and may exercise the
powers of the Board of Directors in the  management  of the business and affairs
of the Company  while the Board is not in session,  except only as  precluded by
law or where  action  other than by a majority  of the votes cast is required by
these Bylaws, or the law (all as referred to in Section 3.06 above), and subject
to such limitations as may be included in any applicable  resolution passed by a
majority of the whole  membership of the Board. A majority of those named to the
Executive Committee will constitute a quorum.

                                      -8-
<PAGE>
     3.08.  OTHER  COMMITTEES.  The Board of Directors may designate one or more
additional committees, each committee to consist of one or more of the directors
of the Company.  The Board of Directors may  designate one or more  directors as
alternate  members of any committee,  who may replace any absent or disqualified
member at any  meeting  of the  committee.  Any such  committee,  to the  extent
permitted by law and to the extent  provided in the  resolution  of the Board of
Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the  management of the business and affairs of the Company,  and
may  authorize  the seal of the  Company to be  affixed  to all papers  that may
require it.

     3.09.  COMMITTEE  FUNCTIONING.   Notice  requirements  and  related  waiver
provisions for meetings of the Executive  Committee and other  committees of the
Board will be the same as those set forth in Section  3.05 above for meetings of
the Board of Directors. Except as provided in the next two succeeding sentences,
a majority of those named to the Executive  Committee or any other  committee of
the Board will  constitute a quorum at any meeting  thereof  (with the effect of
departure of committee  members from a meeting and the computation of a majority
of committee members to be in accordance with the applicable policies of Section
3.06 above), and any matter submitted to a meeting of any such committee will be
resolved by a majority of the votes cast thereon.  No  distinction  will be made
among  ex-officio or other members of any such  committee for quorum,  voting or
other  purposes,  except that the  membership  of any committee  (including  the
Executive  Committee),  in  performing  any  function  vested  in it  as  herein
contemplated,  may be deemed to exclude any officer or employee of the  Company,
in either case, or other person having a direct or indirect personal interest in
any proposed  exercise of such  function,  whose  exclusion  for that purpose is
deemed  appropriate  by a  majority  of the  other  members  of  such  committee
proposing to perform such function.  All committees are to keep regular  minutes
of the transactions of their meetings.

     3.10.  ACTION BY  TELEPHONE  OR  CONSENT.  Any  meeting of the Board or any
committee thereof may be held by conference telephone or similar  communications
equipment as permitted by law, in which case any required notice of such meeting
may generally describe the arrangements  (rather than the place) for the holding
thereof,  and all other provisions herein contained or referred to will apply to
such meeting as though it were  physically  held at a single  place.  Action may
also be taken by the Board or any  committee  thereof  without a meeting  if the
members thereof consent in writing thereto as contemplated by law.

     3.11.  PRESUMPTION OF ASSENT. A director of the Company who is present at a
meeting of the Board of Directors,  or of any committee when corporate action is
taken is deemed to have  assented  to the  action  taken  unless  either (i) the
director  objects at the beginning of the meeting or promptly on the  director's
arrival  to  holding  it or  transacting  business  at  the  meeting;  (ii)  the
director's dissent or abstention from the action taken is entered in the minutes
of the meeting;  or (iii) the director delivers written notice of the director's
dissent  or  abstention  to the  presiding  officer  of the  meeting  before its
adjournment  or to the Company  before 5:00 P.M. on the next  business day after
the meeting.  The right of dissent or  abstention is not available to a director
who votes in favor of the action taken.

     3.12.  COMPENSATION.  By resolution of the Board, the directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors,
or of any  committee,  and may be paid a fixed sum for  attendance  at each such
meeting and/or a stated salary as a

                                      -9-
<PAGE>
director or committee  member.  No such payment will  preclude any director from
serving the Company in any other capacity and receiving compensation therefor.

     3.13. REMOVAL. Any director or the entire Board of Directors may be removed
with or without cause, only at a special meeting of shareholders called for that
purpose,  by the affirmative vote of sixty-six and two-thirds  percent (66 2/3%)
of the  issued and  outstanding  shares of stock  then  entitled  to vote on the
election of directors, except that if less than the entire Board of Directors is
to be removed,  no one of the directors may be removed if the votes cast against
the  director's  removal  would be  sufficient  to elect  the  director  if then
cumulatively  voted at an  election  for the  class of  directors  of which  the
director is a part.

                             IV. OFFICERS - GENERAL

     4.01. ELECTIONS AND APPOINTMENTS. The directors may elect or appoint one or
more of the  officers  of the  Company  contemplated  in Part V below.  Any such
election or  appointment  will regularly take place at the annual meeting of the
directors,  but  elections of officers  may be held at any other  meeting of the
Board.  A person  elected or appointed to any office will  continue to hold that
office until the election or  appointment  of his or her  successor,  subject to
action earlier taken pursuant to Section 4.04 or 6.01 below. Any person may hold
more than one office.

     4.02. ADDITIONAL APPOINTMENTS.  In addition to the officers contemplated in
Part V below, the Board of Directors may create other corporate  positions,  and
appoint  persons  thereto,  with such authority to perform such duties as may be
prescribed  from time to time by the Board of Directors,  by the President or by
the superior officer of any person so appointed. Notwithstanding such additional
appointments, only those persons whose offices are described in Part V are to be
considered an officer of the Company unless the resolution or other Board action
appointing such person  expressly states that such person is to be considered an
officer of the  Company.  Each of such persons (in the order  designated  by the
Board or the  superior  officer of such  person)  will be vested with all of the
powers and charged with all of the duties of his or her superior  officer in the
event of such superior officer's absence or disability.

     4.03. BONDS AND OTHER REQUIREMENTS.  The Board of Directors may require any
officer or other appointee to give bond to the Company (with sufficient  surety,
and conditioned upon the faithful performance of the duties of his or her office
or position)  and to comply with such other  conditions as may from time to time
be required of him or her by the Board.

     4.04.  REMOVAL  OR  DELEGATION.  Provided  that a  majority  of  the  whole
membership  thereof  concurs  therein,  the Board of  Directors  may  remove any
officer  of the  Company as  provided  by law and  declare  his or her office or
offices  vacant or abolished or, in the case of the absence or disability of any
officer or for any other reason considered sufficient,  may temporarily delegate
his or her powers and duties to any other  officer or to any  director.  Similar
action may be taken by the Board of Directors in regard to appointees designated
pursuant to Section 4.02 above.

     4.05.  SALARIES.  Officer  salaries  may from  time to time be fixed by the
Board of Directors or (except as to his or her own) be left to the discretion of
the Chief Executive Officer

                                      -10-
<PAGE>
or the President. No officer will be prevented from receiving a salary by reason
of the fact that he or she is also a director of the Company.

                   V. SPECIFIC OFFICERS, FUNCTIONS AND POWERS

     5.01. CHAIRMAN OF THE BOARD. The Board of Directors may elect a Chairman to
serve as a  general  executive  officer  of the  Company  and,  if  specifically
designated as such by the Board, as the Chief Executive  Officer of the Company.
If elected,  the Chairman  will preside at all meetings of the  directors and be
vested  with such  other  powers  and  duties as the Board may from time to time
delegate to him or her.

     5.02.  CHIEF  EXECUTIVE  OFFICER.  Subject  to the  control of the Board of
Directors exercised as hereinafter provided,  the Chief Executive Officer of the
Company will  supervise  its business and affairs and the  performance  of their
respective duties by all other officers,  by appointees  designated  pursuant to
Section  4.02  above,  and by such  additional  appointees  to  such  additional
positions  (corporate,  divisional or otherwise) as the Chief Executive  Officer
may designate,  with authority on his or her part to delegate the foregoing duty
of supervision to such extent and to such person or persons as may be determined
by the Chief Executive Officer.  Except as otherwise indicated from time to time
by  resolution  of the Board of  Directors,  its  management of the business and
affairs  of the  Company  will be  implemented  through  the office of the Chief
Executive Officer.

     5.03.  PRESIDENT AND VICE  PRESIDENTS.  Unless specified to the contrary by
resolution of the Board of Directors,  the President will be the Chief Executive
Officer of the Company. In addition to the supervisory functions above set forth
on the part of the Chief  Executive  Officer  or in lieu  thereof  if a contrary
specification is made by the Board relative to the Chief Executive Officer,  the
President  will be vested with such powers and duties as the Board may from time
to time  designate.  Vice Presidents may be elected by the Board of Directors to
perform  such  duties  as may be  designated  by the  Board  or be  assigned  or
delegated to them by their respective superior officers.  The Board may identify
(i) one or more Vice  Presidents as "Executive" or "Senior" Vice  Presidents and
(ii) the President or any Vice President as "General Manager" of the Company and
the title of any Vice  President  may  include  words  indicative  of his or her
particular area of responsibility and authority. Vice Presidents will succeed to
the responsibilities and authority of the President,  in the event of his or her
absence or disability,  in the order consistent with their respective  titles or
regular duties or as specifically designated by the Board of Directors.

     5.04.  TREASURER AND  SECRETARY.  The  Treasurer  and  Secretary  each will
perform all such duties normally  associated with his or her office  (including,
in the case of the  Secretary,  the  giving of notice  and the  preparation  and
retention  of minutes of  corporate  proceedings  and the  custody of  corporate
records and the seal of the Company) as are not assigned to a Vice  President of
the Company,  along with such other duties as may be  designated by the Board or
be assigned or  delegated to them by their  respective  superior  officers.  The
Board may appoint one or more  Assistant  Treasurers  or Assistant  Secretaries,
each of whom (in the order designated by the Board or their respective  superior
officers)  will be vested  with all of the  powers and  charged  with all of the
duties of the  Treasurer or the  Secretary  (as the case may be) in the event of
his or her absence or disability.

                                      -11-
<PAGE>
     5.05. SPECIFIC POWERS.  Except as may otherwise be specifically provided in
a resolution of the Board of Directors,  any of the officers referred to in this
Part V will be a proper  officer to  authenticate  records of the Company and to
sign on  behalf  of the  Company  any deed,  bill of sale,  assignment,  option,
mortgage, pledge, note, bond, debenture, evidence of indebtedness,  application,
consent  (to service of process or  otherwise),  agreement,  indenture  or other
instrument  of  importance  to the Company.  Any such officer may  represent the
Company at any  meeting  of the  shareholders  or  members  of any  corporation,
association,  partnership,  joint  venture or other entity in which this Company
then has an interest, and may vote such interest in person or by proxy appointed
by him or her, provided that the Board of Directors may from time to time confer
the foregoing authority upon any other person or persons.

                         VI. RESIGNATIONS AND VACANCIES

     6.01.  RESIGNATIONS.  Any director,  committee member or officer may resign
from his or her office at any time by written  notice as specified in accordance
with Arizona Revised  Statutes  Sections 10-807 and 10-843.  The acceptance of a
resignation will not be required to make it effective.

     6.02. VACANCIES. If the office of any director, committee member or officer
becomes  vacant by reason of his or her  death,  resignation,  disqualification,
removal or  otherwise,  the Board of  Directors  may choose a successor  to hold
office for the unexpired term.

                      VII. INDEMNIFICATION AND RATIFICATION

     7.01.  INDEMNIFICATION.  In order to induce qualified  persons to serve the
Company (and any other corporation,  joint venture, partnership,  trust or other
enterprise at the request of the Company) as directors and officers, the Company
may indemnify any and all of its directors and officers, or former directors and
officers to the fullest  extent  permitted  by  applicable  law as it  presently
exists or may hereafter be amended.

     7.02.  RATIFICATION;  SPECIAL  COMMITTEE.  Any  transaction  involving  the
Company, any of its subsidiary  corporations or any of its directors,  officers,
employees  or agents  which at any time is  questioned  in any manner or context
(including a shareholders  derivative suit), on the ground of lack of authority,
conflict  of  interest,   misleading  or  omitted  statement  of  fact  or  law,
nondisclosure,  miscomputation,  improper principles or practices of accounting,
inadequate records,  defective or irregular execution or any similar ground, may
be investigated  and/or ratified (before or after judgment),  or an election may
be made not to  institute  or  pursue a claim or legal  proceedings  on  account
thereof or to accept or approve a negotiated  settlement  with  respect  thereto
(before  or  after  the  institution  of  legal  proceedings),  by the  Board of
Directors  or  by  a  special   committee  thereof  comprised  of  one  or  more
disinterested   directors  (that  is,  a  director  or  directors  who  did  not
participate  in  the  questioned   transaction  with  actual  knowledge  of  the
questioned aspect or aspects  thereof).  Such a special committee may be validly
formed and fully  empowered to act, in  accordance  with the purposes and duties
assigned  thereto,  by  resolution  or  resolutions  of the Board of  Directors,
notwithstanding  (i) the inclusion of Board members who are not disinterested as
aforesaid  among those who form a quorum at the meeting or meetings at which one
or more members of such special  committee are elected or appointed to the Board
or to such special  committee or at which such committee is formed or empowered,
or

                                      -12-
<PAGE>
their  inclusion  among the directors who vote upon or otherwise  participate in
taking any of the foregoing  actions,  or (ii) the taking of any of such actions
by the disinterested  members of the Board (or a majority of such members) whose
number is not  sufficient to constitute a quorum or a majority of the membership
of the full Board.  Any such special  committee so comprised  will,  to the full
extent  consistent  with its purposes and duties as expressed in such resolution
or  resolutions,  have all of the authority and powers of the full Board and its
Executive  Committee  (the  same as  though it were the full  Board  and/or  its
Executive  Committee in carrying out such purposes and duties) and will function
in accordance with Section 3.09 above. No other provisions of these Bylaws which
may at any time appear to conflict with any provisions of this Section 7.02, and
no defect or  irregularity  in the  formation,  empowering or functioning of any
such special committee,  will serve to impede, impair or bring into question any
action taken or  purported to be taken by such  committee or the validity of any
such action.  Any  ratification  of a transaction  pursuant to this Section 7.02
will  have the  same  force  and  effect  as if the  transaction  has been  duly
authorized originally. Any such ratification,  and any election made pursuant to
this Section 7.02 with respect to claims, legal proceedings or settlements, will
be binding upon the Company and its  shareholders  and will  constitute a bar to
any  claim or the  execution  of any  judgment  in  respect  of the  transaction
involved in such ratification or election.

                                   VIII. SEAL

     8.01. FORM THEREOF. The seal of the Company will have inscribed thereon the
name of the  Company,  the  state  and year of its  incorporation  and the words
"SEAL".

                             IX. STOCK CERTIFICATES

     9.01. FORM THEREOF. Each certificate representing stock of the Company will
be in such form  conforming  to law as may from time to time be  approved by the
Board of Directors,  and will bear the manual  facsimile  signatures and seal of
the Company as required or permitted by law.

     9.02. OWNERSHIP. The Company will be entitled to treat the registered owner
of any share as the absolute owner thereof and accordingly, will not be bound to
recognize  any  beneficial,  equitable  or other claim to, or interest  in, such
share on the part of any other  person,  whether or not it has  notice  thereof,
except as may  expressly be provided by Chapter 8 of Title 47,  Arizona  Revised
Statutes (or its successor), as at the time in effect, or other applicable law.

     9.03. TRANSFERS. Transfer of stock will be made on the books of the Company
only upon surrender of the certificate therefor, duly endorsed by an appropriate
person,  with  such  assurance  of  the  genuineness  and  effectiveness  of the
endorsement  as the Company may  require,  all as  contemplated  by Chapter 8 of
Title 47, Arizona Revised Statutes (or its successor), as at the time in effect,
and/or upon  submission  of any  affidavit,  other  document or notice which the
Company considers necessary.

     9.04. LOST CERTIFICATES.  In the event of the loss, theft or destruction of
any  certificate  representing  capital stock of this  Company,  the Company may
issue (or,  in the case of any such stock as to which a  transfer  agent  and/or
registrar have been appointed,  may direct such transfer agent and/or  registrar
to  countersign,  register and issue) a replacement  certificate in lieu of that

                                      -13-
<PAGE>
alleged to be lost,  stolen or destroyed,  and cause the same to be delivered to
the owner of the stock represented  thereby,  provided that the owner shall have
submitted such evidence showing the  circumstances of the alleged loss, theft or
destruction,  and  his  or  her  ownership  of the  certificate  as the  Company
considers  satisfactory,  together  with any other  factors  which  the  Company
considers  pertinent,  and further  provided that an indemnity  agreement and/or
indemnity bond shall have been provided in form and amount  satisfactory  to the
Company and to its transfer agent and/or registrar, if applicable.

                               X. EMERGENCY BYLAWS

     10.01.  EMERGENCY CONDITIONS.  The emergency Bylaws provided in this Part X
will be as  effective  in the event of an  emergency  as  prescribed  in Arizona
Revised  Statutes  Section  10-207.D.  To the extent not  inconsistent  with the
provisions  of this Part X,  these  Bylaws  will  remain in effect  during  such
emergency  and upon its  termination  these  emergency  Bylaws  will cease to be
operative.

     10.02. BOARD MEETINGS. During any such emergency, a meeting of the Board of
Directors or any of its  committees  may be called by any officer or director of
the  Company.  Notice of the time and place of the meeting  will be given by the
person  calling  the same to those of the  directors  whom it may be feasible to
reach by any available means of communication. Such notice will be given so much
in advance of the meeting as circumstances  permit in the judgment of the person
calling  the same.  At any  Board or  committee  meeting  held  during  any such
emergency,  a quorum will consist of a majority of those who could reasonably be
expected  to attend the  meeting if they were  willing to do so, but in no event
more than a majority of those to whom notice of such meeting is required to have
been given as above provided.

     10.03. CERTAIN ACTIONS. The Board of Directors, either before or during any
such emergency,  may provide and from time to time modify lines of succession in
the  event  that  during  such an  emergency  any or all  officers,  appointees,
employees  or agents of the Company  are for any reason  rendered  incapable  of
discharging their duties. The Board, either before or during any such emergency,
may,  effective in the  emergency,  change the head office or designate  several
alternative head offices of the Company, or authorize the officers to do so.

     10.04. LIABILITY. No director, officer, appointee, employee or agent acting
in  accordance  with these  emergency  Bylaws will be liable  except for willful
misconduct.

     10.05.  MODIFICATIONS.  These emergency Bylaws will be subject to repeal or
change by further action of the Board of Directors, but no such repeal or change
will modify the  provisions  of Section 10.04 with respect to action taken prior
to the time of such repeal or change.  Any amendment of these  emergency  Bylaws
may make any further or different provisions that may be practical and necessary
for the circumstances of the emergency.

                                  XI. DIVIDENDS

     11.01. DECLARATION.  Subject to such restrictions or requirements as may be
imposed by law or the Company's Articles or as may otherwise be binding upon the
Company, the Board of Directors may from time to time declare dividends on stock
of the Company outstanding on the

                                      -14-
<PAGE>
dates of record fixed by the Board, to be paid in cash, in property or in shares
of the  Company's  stock on or as of such payment or  distribution  dates as the
Board may prescribe.

                           XII. BUSINESS COMBINATIONS

     12.01. DEFINITIONS. In these Bylaws, the following definitions shall apply:

          1.   "Affiliate" means a person that directly or indirectly  controls,
               is  controlled  by, or is under  common  control with a specified
               person.

          2.   "Announcement  date,"  when  used in  reference  to any  business
               combination,  means the date of the first public  announcement of
               the final, definitive proposal for the business combination.

          3.   "Associate,"  when  used to  indicate  a  relationship  with  any
               person, means any of the following:

               (a)  Any  corporation or  organization  of which the person is an
                    officer,   director,  or  partnership  or  is,  directly  or
                    indirectly,  the  beneficial  owner of ten percent  (10%) or
                    more of any class or series  of shares  entitled  to vote or
                    other equity interest;

               (b)  Any trust or estate in which the  person  has a  substantial
                    beneficial  interest  or as to which  the  person  serves as
                    trustee or personal representative or in a similar fiduciary
                    capacity; or

               (c)  Any relative or spouse of the person, or any relative of the
                    spouse, residing in the home of the person.

          4.   "Beneficial  owner,"  when used with  respect  to shares or other
               securities,  includes  any person  who,  directly  or  indirectly
               through any agreement, arrangement, relationship,  understanding,
               or otherwise,  whether or not in writing, has or shares the power
               to vote,  or direct the voting of the shares or securities or has
               or shares the power to dispose  of or direct the  disposition  of
               the shares or securities, except that:

               (a)  A person is not  deemed  the  beneficial  owner of shares or
                    securities  tendered  pursuant to a tender or exchange offer
                    made by the  person  or any of the  person's  affiliates  or
                    associates  until  the  tendered  shares or  securities  are
                    accepted for purchase or exchange; and

               (b)  A person is not  deemed  the  beneficial  owner of shares or
                    securities with respect to which the person has the power to
                    vote or direct the voting  arising  solely  from a revocable
                    proxy given in response to a proxy solicitation  required to
                    be made and made in accordance with the applicable rules and
                    regulations  under the  Securities  Exchange Act of 1934, as
                    amended,  and is not  then  reportable  under  that act on a
                    Schedule 13D or comparable report.

                                      -15-
<PAGE>
          5.   "Beneficial  ownership"  includes the right to acquire  shares or
               securities through the exercise of options,  warrants, or rights,
               the  conversion of  convertible  securities,  or  otherwise.  The
               shares or securities subject to the options, warrants, rights, or
               conversion   privileges  held  by  a  person  are  deemed  to  be
               outstanding  for the  purpose  of  computing  the  percentage  of
               outstanding  shares or securities of the class or series owned by
               the person but are not deemed to be  outstanding  for the purpose
               of computing  the  percentage of the class or series owned by any
               other person.  A person is deemed the beneficial  owner of shares
               and securities  beneficially owned by the spouse of the person or
               any  relative  of the spouse  residing in the home of the person,
               any trust or estate in which the person owns ten percent (10%) or
               more of the total  beneficial  interest  or serves as  trustee or
               personal  representative,  any corporation or entity in which the
               person  owns  ten  percent  (10%) or more of the  equity  and any
               affiliate of the person.

          6.   "Business combination," when used in reference to the Company and
               any  interested  shareholder  of the  Company,  means  any of the
               following:

               (a)  Any merger or consolidation of the Company or any subsidiary
                    of the Company with either:

                    (i)   The interested shareholder; or

                    (ii)  Any other domestic or foreign corporation,  whether or
                          not itself an interested  shareholder  of the Company,
                          that is, or after the merger would be, an affiliate or
                          associate of the interested  shareholder,  except that
                          the  foregoing  does  not  include  the  merger  of  a
                          wholly-owned   subsidiary  of  the  Company  into  the
                          Company  or the  merger  of two or  more  wholly-owned
                          subsidiaries of the Company.

               (b)  Any exchange,  pursuant to a plan of exchange under the laws
                    of the State of Arizona or a comparable statute of any other
                    state or  jurisdiction,  of  shares  of the  Company  or any
                    subsidiary of the Company for shares of either:

                    (i)   The interested shareholder; or

                    (ii)  Any other domestic or foreign corporation,  whether or
                          not itself an interested  shareholder  of the Company,
                          that is, or after the exchange  would be, an affiliate
                          or associate of the interested shareholder.

               (c)  Any sale, lease, exchange,  mortgage,  pledge,  transfer, or
                    other  disposition,  in a single  transaction or a series of
                    transactions,  to or with the interested  shareholder or any
                    affiliate or associate of the

                                      -16-
<PAGE>
                    interested  shareholder,  of  assets of the  Company  or any
                    subsidiary  of the  Company  to which  any of the  following
                    applies:

                    (i)   Has an  aggregate  market  value  equal to ten percent
                          (10%) or more of the aggregate market value of all the
                          assets,  determined on a  consolidated  basis,  of the
                          Company.

                    (ii)  Has an  aggregate  market  value  equal to ten percent
                          (10%) or more of the aggregate market value of all the
                          outstanding shares of the Company.

                    (iii) Represents  ten  percent  (10%) or more of the earning
                          power  or net  income,  determined  on a  consolidated
                          basis, of the Company.

               (d)  The issuance or transfer by the Company or any subsidiary of
                    the  Company,  in  a  single  transaction  or  a  series  of
                    transactions, of any shares of the Company or any subsidiary
                    of the Company that have an aggregate  market value equal to
                    five percent (5%) or more of the  aggregate  market value of
                    all the outstanding  shares of the Company to the interested
                    shareholder  or any affiliate or associate of the interested
                    shareholder,  except pursuant to the exercise of warrants or
                    rights  to  purchase   shares   offered  or  a  dividend  or
                    distribution  paid or made pro rata to all  shareholders  of
                    the Company.

               (e)  The adoption of any plan or proposal for the  liquidation or
                    dissolution of the Company,  or any  reincorporation  of the
                    Company in another  state or  jurisdiction,  proposed by, on
                    behalf of, or pursuant  to any  agreement,  arrangement,  or
                    understanding,   whether  or  not  in   writing,   with  the
                    interested  shareholder or any affiliate or associate of the
                    interested shareholder.

               (f)  Any  reclassification  of  securities,  including  any share
                    dividend   or  split,   reverse   share   split,   or  other
                    distribution    of   shares   in    respect    of    shares,
                    recapitalization of the Company,  merger or consolidation of
                    the Company with any  subsidiary of the Company  exchange of
                    shares of the Company with any  subsidiary of the Company or
                    other transaction,  whether or not with or into or otherwise
                    involving the interested shareholder, proposed by, on behalf
                    of,  or  pursuant   to  any   agreement,   arrangement,   or
                    understanding,   whether  or  not  in   writing,   with  the
                    interested  shareholder or any affiliate or associate of the
                    interested  shareholder  that has the  effect,  directly  or
                    indirectly,  of increasing  the  proportionate  share of the
                    outstanding shares of any class or series of shares entitled
                    to  vote,  or  securities  that  are   exchangeable  for  or
                    convertible  into or that  carry a right to  acquire  shares
                    entitled to vote,  of the Company

                                      -17-
<PAGE>
                    or any  subsidiary  of the  Company  that  is,  directly  or
                    indirectly,  owned  by  the  interested  shareholder  or any
                    affiliate or associate of the interested shareholder, except
                    as a result of immaterial  changes due to  fractional  share
                    adjustments.

               (g)  Any receipt by the  interested  shareholder or any affiliate
                    or associate of the  interested  shareholder of the benefit,
                    directly  or  indirectly,   except   proportionately   as  a
                    shareholder  of  the  Company,   of  any  loans,   advances,
                    guarantees,  pledges,  or other financial  assistance or any
                    tax credits or other tax  advantages  provided by or through
                    the Company or any  subsidiary  of the  Company  (other than
                    expense  account  advances  made in the  ordinary  course of
                    business).

          7.   "Consummation  date," with respect to any  business  combination,
               means the date of consummation of the business combination or, in
               the case of a business combination as to which a shareholder vote
               is taken, the later of:

               (i)  The business day before the vote; or

               (ii) Twenty  (20) days  before  the date of  consummation  of the
                    business combination.

          8.   "Control,"  "controlling,"   "controlled  by"  or  "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
               securities,  by contract,  or  otherwise.  A person's  beneficial
               ownership of ten percent (10%) or more of the voting power of the
               Company's  outstanding shares entitled to vote in the election of
               directors  creates a  presumption  that the person has control of
               the Company.  A person is not  considered  to have control of the
               Company if the person holds voting  power,  in good faith and not
               for the purpose of  avoiding  any  provision  of law as an agent,
               bank,  broker,  nominee,  custodian,  or trustee  for one or more
               beneficial  owners  who do not  individually  or as a group  have
               control of the Company.

          9.   "Interested  shareholder,"  when used in reference to the Company
               means any person, other than the Company or any subsidiary of the
               Company, that is either:

               (a)  The beneficial owner, directly or indirectly, of ten percent
                    (10%) or more of the voting power of the outstanding  shares
                    entitled to vote of the Company; or

               (b)  An affiliate or associate of the Company.

                                      -18-
<PAGE>
          10.  "Interested  shares" means the shares of the Company with respect
               to which any of the following  persons may exercise or direct the
               exercise  of voting  power in the  election of  directors  of the
               Company:

               (a)  An interested shareholder;

               (b)  Any officer of the Company; or

               (c)  Any director of the Company.

          11.  "Market  value,"  when used in reference to shares or property of
               the Company, means the following:

               (a)  In the case of shares, the highest closing sale price during
                    the thirty (30) day period immediately preceding the date in
                    question of a share on the composite tape for New York Stock
                    Exchange  listed  shares or, if the shares are not quoted on
                    the  composite  tape or not  listed  on the New  York  Stock
                    Exchange, on the principal United States securities exchange
                    registered  under the  Securities  Exchange Act of 1934,  as
                    amended, on which the share are listed or, if the shares are
                    not listed on any such exchange, on the National Association
                    of Securities  Dealers,  Inc. Automated  Quotations National
                    Market  System  or,  if the  shares  are not  quoted  on the
                    National  Association of Securities Dealers,  Inc. Automated
                    Quotations  National Market System,  the highest closing bid
                    quotation  during the thirty (30) day period  preceding  the
                    date in question of a share on the National  Association  of
                    Securities Dealers,  Inc. Automated Quotations System or any
                    system then in use or, if no such  quotation  is  available,
                    the fair market  value on the date in question of a share as
                    determined  in  good  faith  by the  Board  of the  Company,
                    subject to arbitration.

               (b)  In the case of property other than cash or shares,  the fair
                    market  value of the  property  on the date in  question  as
                    determined  in  good  faith  by the  Board  of the  Company,
                    subject to arbitration.

          12.  "Person"  means any  natural  person,  partnership,  corporation,
               group,  association,  venture,  firm, or other entity (other than
               the  Company,  any  subsidiary  of the  Company,  or a trustee or
               fiduciary  holding  stock for the benefit of the employees of the
               Company  or  its  subsidiaries  or any  one of its  subsidiaries,
               pursuant to one or more employee  benefit plans).  If two or more
               persons act as a partnership, limited partnership,  syndicate, or
               other group pursuant to any agreement, arrangement, relationship,
               understanding,  or otherwise,  whether or not in writing, for the
               purposes of acquiring,  owning,  or voting shares of the Company,
               all members of the partnership,  syndicate,  or other group shall
               be deemed a person.  Person does not  include a licensed  broker,
               dealer, or underwriter that purchases

                                      -19-

<PAGE>
               shares of the Company solely for purposes of resale to the public
               that is not acting in concert with an interested shareholder.

          13.  "Share  acquisition  date,"  with  respect  to any person and the
               Company,  means  the  date  that  the  person  first  becomes  an
               interested shareholder of the Company.

     12.02.  BUSINESS  COMBINATION  WITH  INTERESTED  SHAREHOLDERS;  APPROVED BY
DIRECTORS.

          1.   Except as set forth in these  Bylaws,  the Company may not engage
               in any business  combination or vote, consent or otherwise act to
               authorize a  subsidiary  of the Company to engage in any business
               combination  with  respect to,  proposed  by, or on behalf of, or
               pursuant to any agreement, arrangement or understanding,  whether
               or not in writing, with any interested shareholder of the Company
               or any affiliate or associate of the interested shareholder for a
               period  of three (3) years  after  the  interested  shareholder's
               share acquisition  date,  unless the business  combination or the
               acquisition of shares made by the  interested  shareholder on the
               interested  shareholder's share acquisition date is approved by a
               committee  of the Board of  Directors  of the Company  before the
               interested  shareholder's  share  acquisition date. The committee
               shall be formed in accordance  with  subsection 4 of this Section
               12.02.

          2.   If  a  good  faith  definitive   proposal  regarding  a  business
               combination  is made in writing to the Board of  Directors of the
               Company,  a  committee  of the Board  formed in  accordance  with
               subsection 4 of this Section 12.02 shall consider and take action
               on the proposal  and respond in writing  within  forty-five  (45)
               days after receipt of the proposal by the Company,  setting forth
               its decision regarding the proposal.

          3.   If a good faith definitive  proposal to acquire shares is made in
               writing to the Board of Directors of the Company,  a committee of
               the Board of Directors  formed in accordance with subsection 4 of
               this  Section  12.02  shall  consider  and  take  action  on  the
               proposal.  Unless the committee responds affirmatively in writing
               within  forty-five (45) days after receipt of the proposal by the
               Company,  the committee  shall be considered to have  disapproved
               the share acquisition.

          4.   When a business  combination or acquisition of shares is proposed
               pursuant to this  Section  12.02,  the Board of  Directors  shall
               promptly  form  a  committee  composed  of  all  of  the  Board's
               disinterested  Directors.  The committee shall take action on the
               proposal  by the  affirmative  vote of a simple  majority  of the
               committee members.  The committee is not subject to any direction
               or  control  by  the  Board  with  respect  to  the   committee's
               consideration of or any action concerning a business  combination
               or  acquisition  of shares  pursuant  to this  Section  12.02.  A
               committee formed pursuant to this subsection shall be composed of
               one or more members.

                                      -20-
<PAGE>
               Only disinterested Directors may be members of a committee formed
               pursuant to this subsection.  However,  if the Board of Directors
               has no disinterested  Directors,  the Board shall select three or
               more disinterested  persons to be committee members. For purposes
               of this subsection,  a Director or person is disinterested if the
               Director  or  person  is  not  an  interested  shareholder  or an
               affiliate  thereof or a present or former  officer or employee of
               the Company or an affiliate or associate of the Company.

     12.03.  Requirements  after  Three  Years.  Except  for the  provisions  of
Sections 12.02 and 12.04, the Company may not engage at any time in any business
combination or vote,  consent, or otherwise act to authorize a subsidiary of the
Company to engage in any business  combination  with respect to, proposed by, on
behalf of, or pursuant to any agreement, arrangement, or understanding,  whether
or not in  writing,  with  an  interested  shareholder  of  the  Company  or any
affiliate  or  associate  of the  interested  shareholder  other than a business
combination meeting all the requirements of this Article XII, the Articles,  and
the requirements specified in any of the following:

          1.   A business  combination  with  respect to which the  consummation
               date is no less than  three  years  after  the share  acquisition
               date,  approved by the Board of Directors  of the Company  before
               the interested  shareholder's  share  acquisition  date, or as to
               which  the   acquisition   of  shares  made  by  the   interested
               shareholder on the interested shareholder's  acquisition date had
               been  approved by the Board of  Directors  before the  interested
               shareholder's share acquisition date.

          2.   A business  combination  approved by the affirmative  vote of the
               holders of a majority of the outstanding  shares entitled to vote
               not beneficially  owned by the interested  shareholder  proposing
               the  business  combination  or any  affiliate or associate of the
               interested  shareholder  proposing the business  combination at a
               meeting called for that purpose no earlier than three years after
               the interested shareholder's share acquisition date.

          3.   A business  combination,  with respect to which the  consummation
               date  is  no  earlier  than  three  years  after  the  interested
               shareholder's  share  acquisition  date,  that  meets  all of the
               following conditions:

               (a)  The aggregate  amount of the cash and the market value as of
                    the consummation date of consideration other than cash to be
                    received per share by holders of  outstanding  common shares
                    of the Company in the business combination is at least equal
                    to the higher of the following:

                    (i)   The  highest  per share  price paid by the  interested
                          shareholder, at a time when the interested shareholder
                          was the beneficial owner,  directly or indirectly,  of
                          five  percent (5%) or more of the  outstanding  shares
                          entitled to vote of the Company, for any common shares
                          of the same class or

                                      -21-
<PAGE>
                          series acquired by it within the three (3) year period
                          immediately  before the announcement date with respect
                          to the  business  combination  or within the three (3)
                          year period immediately before, or in, the transaction
                          in  which  the   interested   shareholder   became  an
                          interested shareholder,  whichever is higher, plus, in
                          either case,  interest  compounded  annually  from the
                          earliest   date  on  which  the   highest   per  share
                          acquisition  price was paid  through the  consummation
                          date at the rate for one year United  States  treasury
                          obligations  from  time  to time in  effect  less  the
                          aggregate  amount of any cash dividends  paid, and the
                          market value of any dividends paid other than in cash,
                          per common  share since the earliest  date,  up to the
                          amount of the interest.

                    (ii)  The market value per common share on the  announcement
                          date with  respect to the business  combination  or on
                          the interested  shareholder's  share acquisition date,
                          whichever is higher, plus interest compounded annually
                          from that date  through the  consummation  date at the
                          rate for one year United States  treasury  obligations
                          from time to time in effect less the aggregate  amount
                          of any cash dividends paid and the market value of any
                          dividends  paid other than in cash,  per common  share
                          since that date, up to the amount of the interest.

                    (b)   The aggregate  amount of the cash and the market value
                          as of the  consummation  date of  consideration  other
                          than  cash to be  received  per  share by  holders  of
                          outstanding  shares of any class or series of  shares,
                          other  than  common  shares,  of  the  Company  in the
                          business  combination is at least equal to the highest
                          of  the  following,  whether  or  not  the  interested
                          shareholder has previously  acquired any shares of the
                          class or series:

                          (i)   The   highest   per  share  price  paid  by  the
                                interested  shareholder,  at  a  time  when  the
                                interested shareholder was the beneficial owner,
                                directly or indirectly,  of five percent (5%) or
                                more of the outstanding  shares entitled to vote
                                of the  Company,  for any shares of the class or
                                series  acquired by it within the three (3) year
                                period  immediately before the announcement date
                                with  respect  to the  business  combination  or
                                within  the  three (3) year  period  immediately
                                before,  or in,  the  transaction  in which  the
                                interested   shareholder  became  an  interested
                                shareholder,   whichever  is  higher,  plus,  in
                                either

                                      -22-
<PAGE>

                                case,  interest  compounded  annually  from  the
                                earliest  date on which  the  highest  per share
                                acquisition   price   was   paid   through   the
                                consummation  date  at the  rate  for  one  year
                                United States treasury  obligations from time to
                                time in effect less the aggregate  amount of any
                                cash  dividends paid and the market value of any
                                dividends  paid other than in cash, per share of
                                the class or series since such earliest date, up
                                to the amount of the interest.

                          (ii)  The  highest  preferential  amount  per share to
                                which  the  holders  of  shares  of the class or
                                series  are   entitled   in  the  event  of  any
                                voluntary liquidation,  dissolution,  or winding
                                up of the Company,  plus the aggregate amount of
                                any unpaid dividends declared or due as to which
                                the  holders  are  entitled  before  payment  of
                                dividends  on some  other  class  or  series  of
                                shares,  unless  the  aggregate  amount  of  the
                                dividends   is  included  in  the   preferential
                                amount.

                          (iii) The  market  value  per  share  of the  class or
                                series on the announcement  date with respect to
                                the business  combination  or on the  interested
                                shareholder's share acquisition date,  whichever
                                is higher,  plus  interest  compounded  annually
                                from that date through the consummation  date at
                                the  rate for one year  United  States  treasury
                                obligations from time to time in effect less the
                                aggregate  amount of any cash dividends paid and
                                the  market  value of any  dividends  paid other
                                than in cash,  per  share of the class or series
                                since  that  date,  up  to  the  amount  of  the
                                interest.

                    (c)  The  consideration  to  be  received  by  holders  of a
                         particular  class  or  series  of  outstanding  shares,
                         including common shares, of the Company in the business
                         combination  is in  cash  or in the  same  form  as the
                         interested  shareholder has used to acquire the largest
                         number  of  shares  of the  class or  series  of shares
                         previously  acquired  by it and  the  consideration  is
                         distributed promptly.

                    (d)  The  holders of all  outstanding  shares of the Company
                         not  beneficially  owned by the interested  shareholder
                         immediately  before the consummation  date with respect
                         to the business  combination are entitled to receive in
                         the

                                      -23-
<PAGE>
                         business  combination cash or other  consideration  for
                         the shares in compliance with subdivisions (a), (b) and
                         (c).

                    (e)  After the interested  shareholder's  share  acquisition
                         date and before the  consummation  date with respect to
                         the business  combination,  the interested  shareholder
                         has not become the  beneficial  owner of any additional
                         shares entitled to vote of the Company except:

                          (i)   As part of the transaction  that resulted in the
                                interested  shareholder  becoming an  interested
                                shareholder;

                          (ii)  By virtue of proportionate  share splits,  share
                                dividends,  or other  distributions of shares in
                                respect  of shares not  constituting  a business
                                combination;

                          (iii) Through a business  combination  meeting  all of
                                the   conditions   of  Section  12.02  and  this
                                paragraph; or

                          (iv)  Through  purchase by the interested  shareholder
                                at any price that, if the price had been paid in
                                an otherwise  permissible  business  combination
                                the announcement  date and consummation  date of
                                which were the date of the purchase,  would have
                                satisfied the requirements of subdivisions  (a),
                                (b) and (c) of this Section.

     12.04.  APPLICATION.  This  Article  XII  does not  apply  to any  business
combination  of the Company with an  interested  shareholder  of the Company who
became an interested  shareholder  inadvertently,  if the interested shareholder
both:

          1.   As soon as practicable,  divests itself of a sufficient amount of
               the shares  entitled  to vote of the Company so that it no longer
               is the beneficial owner,  directly or indirectly,  of ten percent
               (10%) or more of the  outstanding  shares entitled to vote of the
               Company.

          2.   Would not at any time within the three (3) year period  preceding
               the  announcement  date with respect to the business  combination
               have been an interested  shareholder  except for the  inadvertent
               acquisition.

                      XIII. LIMITATION ON SHARE REPURCHASES

     13.01. LIMITATION ON SHARE REPURCHASES.  The Company shall not, directly or
indirectly,  purchase  or agree to purchase  any shares  entitled to vote from a
person,  or two or more persons who act as a partnership,  limited  partnership,
syndicate or other group pursuant to any agreement,  arrangement,  relationship,
understanding or otherwise, whether or not in writing,

                                      -24-
<PAGE>
for the  purpose  of  acquiring,  owning or voting  shares  of the  Company  who
beneficially  owns  more  than  five per cent  (5%) of the  voting  stock of the
Company  for more than the  "average  market  price" of the shares if the shares
have been  beneficially  owned by the person or persons  for less than three (3)
years,  unless the purchase or agreement to purchase is approved at a meeting of
shareholders by the affirmative  vote of the holders of a majority of the voting
stock entitled to vote and not beneficially owned by such person or persons from
whom the proposed  repurchase is to be made or the Company makes an offer, of at
least  equal  value per share,  to all holders of shares of such class or series
and to all  holders  of any  class  or  series  into  which  the  shares  may be
converted.

     13.02.  DEFINITIONS.  For the  purposes of this  Article,  "average  market
price"  means the average  closing  sale price  during the thirty  trading  days
immediately  preceding the purchase of the shares in question,  or if the person
or persons have  commenced a tender offer or have announced an intention to seek
control of the Company,  during the thirty trading days preceding the earlier of
the  commencement  of the tender offer or the making of the  announcement,  of a
share on the composite tape for New York Stock Exchange listed shares or, if the
shares are not quoted on the composite  tape or not listed on the New York Stock
Exchange,  on the principal United States securities  exchange  registered under
the Securities  Exchange Act of 1934, as amended, on which the shares are listed
or,  if the  shares  are  not  listed  on any  such  exchange,  on the  National
Association of Securities  Dealers,  Inc. Automated  Quotations  National Market
System  or,  if the  shares  are  not  quoted  on the  National  Association  of
Securities  Dealers,  Inc.  Automated  Quotations  National  Market System,  the
average  closing bid  quotation,  during the thirty  trading days  preceding the
purchase of the shares in questions of a share on the  National  Association  of
Securities Dealers,  Inc. Automated Quotations System or any system then in use,
or if the person or persons have  commenced a tender offer or have  announced an
intention to seek control of the issuing public  corporation,  during the thirty
trading days  preceding the earlier of the  commencement  of the tender offer or
the making of the  announcement,  except that if no quotation  is available  the
average  market  price is the fair  market  value on the date of purchase of the
shares  in  question  of a share as  determined  in good  faith by the  Board of
Directors of the Company.

                                 XIV. AMENDMENTS

     14.01.  AMENDMENT  OF  ARTICLES  AND  BYLAWS.   Notwithstanding  any  other
provision of these Bylaws,  Article  Fifth of the Articles  (Restated As of July
29, 1988) and Sections  2.02,  3.01, and 3.13 and Articles XII, XIII, and XIV of
these  Bylaws  shall  not  be  altered,  amended,  supplemented,   repealed,  or
temporarily or permanently suspended,  in whole or in part, or replacement Bylaw
provisions  adopted  without:  (I) the  affirmative  vote of a  majority  of the
directors then in office;  or (ii) the affirmative vote of seventy-five  percent
(75%)  or  more  of the  outstanding  shares  of the  Company  entitled  to vote
generally.

                                      -25-
<PAGE>
                                   CERTIFICATE

     I, FAYE  WIDENMANN,  Vice  President and Secretary of Pinnacle West Capital
Corporation,  an Arizona Corporation,  do HEREBY CERTIFY that the foregoing is a
true and correct copy of the Company's Bylaws, as amended,  and that they are in
full force and effect as of the date hereof.

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
corporation this 15th day of December, 1999.

                                       FAYE WIDENMANN
                                       Secretary<PAGE>   1
                                                                    EXHIBIT 10.1

                            COMMTOUCH SOFTWARE LTD.

                           1996 CSI STOCK OPTION PLAN

       1. Purposes of the Plan. The purposes of this Plan are to attract and
retain the best available personnel, to provide additional incentive to
Employees and Consultants of the Company and its Subsidiary and to promote the
success of the Company and the Subsidiary's business. Options granted under the
Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined
by the Administrator at the time of grant of an Option and subject to the
applicable provisions of Section 422 of the Code and the regulations promulgated
thereunder. Shares Purchase Rights may also be granted under the Plan. The
Options and Shares Purchase Rights offered pursuant to the Plan are a matter of
separate inducement and are not in lieu of salary or other compensation.

       2. Definitions. As used herein, the following definitions shall apply:

               (a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan, in its capacity as an administrator
of the Plan.

               (b) "Board" means the Board of Directors of the Company.

               (c) "Code" means the Internal Revenue Code of 1986, as amended.

               (d) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.

               (e) "Company" means CommTouch Software Ltd., an Israeli company.

               (f) "Consultant" means any person who is not an Employee and who
is engaged by the Company or the Subsidiary to render consulting or advisory
services and is compensated for such services, and any Director of the Company
or the Subsidiary whether compensated for such services or not. If the Company
registers any class of any equity security pursuant to the Exchange Act, the
term Consultant shall thereafter not include Directors who are not compensated
for their services or are paid only a Director's fee.

               (g) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship with the Company or the Subsidiary is
not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or the Subsidiary or (ii) transfers between locations of
the Company or the Subsidiary or between the Subsidiary and the Company or any
successor. A leave of absence shall include sick leave, military leave, or any
other personal leave approved by an authorized representative of the Company or
the Subsidiary, as applicable. For purposes of Incentive Stock Options, no such
leave may exceed 90 days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract, including policies of the Company or the
Subsidiary, as applicable. If reemployment upon expiration of a leave of absence
approved by the Company or the Subsidiary is not so guaranteed, on the 181st day
of such leave any Incentive Stock Option held by the Optionee shall

<PAGE>   2
cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option.

               (h) "CSI" means CommTouch Software, Inc., a California
corporation.

               (i) "Director" means a member of either of the boards of
directors of the Company or the Subsidiary.

               (j) "Employee" means any person, including Officers and
Directors, employed by the Company or the Subsidiary. The payment of a
Director's fee by the Company or the Subsidiary shall not be sufficient to
constitute "employment."

               (k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

               (l) "Fair Market Value" means, as of any date, the value of the
Ordinary Shares determined as follows:

                   (i) If the Ordinary Shares are listed on any established
           stock exchange or a national market system, including without
           limitation the Nasdaq National Market of the National Association of
           Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its
           Fair Market Value shall be the closing sales price for such stock (or
           the closing bid, if no sales were reported) as quoted on such
           exchange or system for the last market trading day prior to the time
           of determination and reported in The Wall Street Journal or such
           other source as the Administrator deems reliable;

                   (ii) If the Ordinary Shares are quoted on the NASDAQ System
           (but not on the Nasdaq National Market thereof) or regularly quoted
           by a recognized securities dealer but selling prices are not
           reported, its Fair Market Value shall be the mean between the high
           bid and low asked prices for the Ordinary Shares on the last market
           trading day prior to the day of determination; or

                   (iii) In the absence of an established market for the
           Ordinary Shares, the Fair Market Value thereof shall be determined in
           good faith by the Administrator.

               (m) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

               (n) "Nonstatutory Stock Option" means an option not intended to
qualify as an Incentive Stock Option.

               (o) "Officer" means a person who is an officer of the Company or
the Subsidiary within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

               (p) "Option" means a stock option granted pursuant to the Plan.

               (q) "Optioned Stock" means the Ordinary Shares subject to an
Option or a Shares Purchase Right.

                                       2
<PAGE>   3

               (r) "Optionee" means an Employee or Consultant who receives an
Option or Shares Purchase Right.

               (s) "Ordinary Shares" means the Ordinary Shares of stock of the
Company.

               (t) "Plan" means the 1996 CSI Stock Option Plan.

               (u) "Restricted Shares" means each of the Ordinary Shares
acquired pursuant to a grant of a Shares Purchase Right under Section 11 below.

               (v) "Section 16(b)" means Section 16(b) of the Exchange Act.

               (w) "Shares Purchase Right" means a right to purchase Ordinary
Shares pursuant to Section 11 below.

               (x) "Subsidiary" means CommTouch Software, Inc., a California
corporation, the Company's wholly-owned U.S. subsidiary.

        3. Shares Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the aggregate number of Ordinary Shares that may be subject to
option and sold under this Plan is 5,000,000, unless amended by the shareholders
of the Company. The Ordinary Shares may be authorized but unused, or reacquired
Ordinary Shares.

               If an Option or Shares Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an option exchange pursuant to Section 4(c)(viii) or otherwise, the
unpurchased Ordinary Shares which were subject thereto shall become available
for future grant or sale under the Plan (unless the Plan has terminated).
However, Ordinary Shares that have actually been issued under the Plan, upon
exercise of either an Option or Shares Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan.

        4. Administration of the Plan.

               (a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.

               (b) Plan Procedure After the Date, if any, upon which the Company
becomes Subject to the Exchange Act.

                       (i) Multiple Administrative Bodies. If permitted by Rule
        16b-3, the plan may be administered by different bodies with respect to
        Directors, Officers and Employees who are neither Directors nor
        Officers.

                       (ii) Administration With Respect to Directors and
        Officers. With respect to grants of Options and Shares Purchase Rights
        to Employees who are also Officers or Directors, the Plan shall be
        administered by (A) the Board if the Board may administer the Plan in
        compliance with applicable Israeli securities laws, the rules under Rule
        16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
        16b-3") relating to the disinterested administration of employee benefit
        plans under which Section 16(b) exempt discretionary grants and awards
        of equity securities are to be made, or (B) a Committee designated by
        the Board to

                                       3
<PAGE>   4

        administer the Plan, which Committee shall be constituted to comply with
        the applicable laws of Israel, rules under Rule 16b-3 relating to the
        disinterested administration of employee benefit plans under which
        Section 16(b) exempt discretionary grants and awards of equity
        securities are to be made. Once appointed, such Committee shall continue
        to serve in its designated capacity until otherwise directed by the
        Board. From time to time the Board may increase the size of the
        Committee and appoint additional members thereof, remove members (with
        or without cause) and appoint new members in substitution therefor, fill
        vacancies, however caused, and remove all members of the Committee and
        thereafter directly administer the Plan, all to the extent permitted by
        applicable laws of Israel, the rules under Rule 16b-3 relating to the
        disinterested administration of employee benefit plans under which
        Section 16(b) exempt discretionary grants and awards of equity
        securities are to be made.

                       (iii) Administration With Respect to Other Employees and
        Consultants. With respect to grants of Options and Shares Purchase
        Rights to Employees or Consultants who are neither Directors nor
        Officers, the Plan shall be administered by (A) the Board or (B) a
        Committee designated by the Board, which committee shall be constituted
        in such a manner as to satisfy the legal requirements relating to the
        administration of incentive stock option plans, if any, of the laws and
        regulations of Israel, of California laws and regulations, of the Code,
        and of any applicable stock exchange (collectively, the "Applicable
        Laws"). Once appointed, such Committee shall continue to serve in its
        designated capacity until otherwise directed by the Board. From time to
        time the Board may increase the size of the Committee and appoint
        additional members thereof, remove members (with or without cause) and
        appoint new members in substitution therefor, fill vacancies, however
        caused, and remove all members of the Committee and thereafter directly
        administer the Plan, all to the extent permitted by the Applicable Laws.

                       (iv) Compliance with Section 162(m). If, at any time,
        awards made under the Plan shall be subject to Section 162(m) of the
        Code, the Plan shall be administered by a committee comprised solely of
        "outside directors" (within the meaning of Prop. Treas. Reg. Section
        1.162-27(e)(3)) or such other persons as may be permitted from time to
        time under Section 162(m) of the Code and the Treasury Regulations
        promulgated thereunder.

               (c) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the
Ordinary Shares are listed, the Administrator shall have the authority in its
discretion:

                       (i) to determine the Fair Market Value of the Ordinary
        Shares, in accordance with Section 2(1) of the Plan;

                       (ii) to select the Consultants and Employees to whom
        Options and Shares Purchase Rights may from time to time be granted
        hereunder;

                       (iii) to determine whether and to what extent Options and
        Shares Purchase Rights or any combination thereof are granted hereunder;

                       (iv) to determine the number of Ordinary Shares to be
        covered by each such award granted hereunder;

                       (v) to approve forms of agreement for use under the Plan;

                                       4
<PAGE>   5

                       (vii) to reduce the exercise price of any Option to the
        then current Fair Market Value if the Fair Market Value of the Ordinary
        Shares covered by such Option has declined since the date the Option was
        granted; and

                       (viii) to construe and interpret the terms of the Plan
        and awards granted pursuant to the Plan.

               (d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Shares Purchase
Rights.

        5. Eligibility.

               (a) Nonstatutory Stock Options and Shares Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Shares Purchase Right may, if otherwise eligible, be granted additional Options
or Shares Purchase Rights.

               (b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Ordinary Shares with respect to which Incentive Stock
Options are exercisable for the first time by any particular Optionee during any
calendar year (under all plans of the Company and the Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Ordinary Shares shall be determined as of the time the Option with respect to
such Ordinary Shares is granted.

               (c) Neither the Plan nor any Option or Shares Purchase Right
shall confer upon any Optionee any right with respect to continuation of his or
her employment or consulting relationship with the Company or the Subsidiary, as
applicable, nor shall it interfere in any way with his or her right or the
Company or the Subsidiary's right to terminate his or her employment or
consulting relationship at any time, with or without cause.

        6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company, as described in Section 18 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 14 of the Plan.

        7. Term of Option. The term of each Option shall be the term stated in
the option agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or the Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the option agreement.

                                       5
<PAGE>   6

        8. Option Exercise Price and Consideration.

               (a) The per share exercise price for the Ordinary Shares to be
issued upon exercise of any Option shall be such price as is determined by the
Administrator, but shall be subject to the following:

                       (i) In the case of an Incentive Stock Option

                               (A) granted to an Employee who, at the time of
               grant of such Option, owns stock representing more than ten
               percent (10%) of the voting power of all classes of stock of the
               Company or of the Subsidiary, the per share exercise price shall
               be no less than 110% of the Fair Market Value per Ordinary Share
               on the date of grant.

                               (B) granted to any other Employee, the per share
               exercise price shall be no less than 100% of the Fair Market
               Value per Ordinary Share on the date of grant.

                       (ii) In the case of a Nonstatutory Stock Option

                               (A) granted to a person who, at the time of grant
               of such Option, owns stock representing more than ten percent
               (10%) of the voting power of all classes of stock of the Company
               or of the Subsidiary, the per share exercise price shall be no
               less than 110% of the Fair Market Value per Ordinary Share on the
               date of the grant.

                               (B) granted to any other person, the per share
               exercise price shall be no less than 85% of the Fair Market Value
               per Ordinary Share on the date of grant.

               (b) The consideration to be paid for the Ordinary Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant). Such consideration may consist of (1)
cash, (2) check, (3) promissory note (to the extent permitted by Applicable
Laws) in the form attached hereto as Exhibit A, secured by a pledge of the
shares issued pursuant to a share pledge in the form attached hereto as Exhibit
B, or (4) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company. Optionee shall also deliver a properly executed exercise
notice together with such other documentation as the Administrator and a broker,
if applicable, shall require to effect an exercise of the Option.

        9. Exercise of Option.

               (a) Procedure for Exercise: Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than 20% per year over five (5)
years from the date the Option is granted.

               An Option may not be exercised for a fraction of an Ordinary
Share.

               An Option shall be deemed to be exercised when written notice of
such exercise in the form attached hereto as Exhibit C has been given to the
Company in accordance with terms of the Option by the person entitled to
exercise the Option and full payment for the Ordinary Shares with respect to

                                       6
<PAGE>   7

which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Administrator, consist of any consideration and method
of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Ordinary
Shares, no right to vote, receive dividends or any other rights as a shareholder
shall exist with respect to the Optioned Stock, notwithstanding the exercise of
the Option. The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 13 hereof.

               Exercise of an Option in any manner shall result in a decrease in
the number of Ordinary Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Ordinary
Shares as to which the Option is exercised.

               (b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the option
agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.

               (c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but, only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
termination of such Option as set forth in the option agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of his or her "permanent
disability" as such term is defined in Section 22(e)(3) of the Code, the
Optionee shall be entitled, but only within twelve (12) months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the option agreement), to exercise all Options such
Employee or Consultant would have been entitled to exercise had such Employee or
Consultant remained employed for two (2) years from the date of such
termination. If such disability is not a "permanent disability," in the case of
an Incentive Stock Option such Incentive Stock Option shall automatically cease
to be treated as an Incentive Stock Option and shall be treated for tax purposes
as a Nonstatutory Stock Option on the day three months and one day following
such termination. If the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Ordinary Shares covered by such Option shall revert to the Plan.

               (d) Death of Optionee. In the event of the death of an Optionee,
the Optionee's estate or any person who acquired the right to exercise the
Option by bequest or inheritance shall be entitled, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the option
agreement), to exercise all Options such Employee or Consultant would have
received had such Employee or Consultant remained

                                       7
<PAGE>   8

employed for two (2) years from the date of such termination. All remaining
Ordinary Shares covered by the unexercisable portion of the Option shall
immediately revert to the Plan. If, after the Optionee's death, the Optionee's
estate or a person who acquires the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Ordinary Shares covered by such Option shall
revert to the Plan.

               (e) Rule 16b-3. Options granted to a person subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.

        10. Non-Transferability of Options and Shares Purchase Rights. Options
and Shares Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

        11. Restricted Shares.

               (a) Awards of Restricted Shares.

                       The Committee may, in its discretion, permit an Optionee
to exercise an Option prior to the time the Option would otherwise be
exercisable under Section 9. Without limiting the generality of the foregoing,
the Committee may provide that if an Option is exercised prior to satisfaction
of the vesting requirements of Section 9, the Shares issued upon such exercise
shall remain subject to vesting as described in Section 11(c) and shall be
subject to a right, but not an obligation, of repurchase by the Company with
respect to all unvested Shares if the Optionee ceases to be an Employee for any
reason.

               (b) Restrictions.

                       (i) Restricted Shares may not be sold, assigned,
transferred, pledged, encumbered, or otherwise disposed of, either voluntarily
or involuntarily, until the release of such Shares from the Company's repurchase
option under Section 11(c), other than by will or the laws of descent and
distribution.

                       (ii) Optionees receiving Restricted Shares shall be
entitled to dividend and voting rights for the Restricted Shares even though
they are not vested, provided that such rights shall terminate immediately as to
any Restricted Shares that are repurchased by the Company.

                       (iii) With respect to each receipt of Restricted Shares
by an Optionee, such Optionee shall execute a Restricted Share Purchase
Agreement in the form attached hereto as Exhibit D.

               (c) Vesting.

                       If the Optionee ceases to be an Employee for any reason,
the Company shall have the right, but not the obligation, to repurchase certain
of the Shares at their original Exercise Price. The Company's right to
repurchase the Shares at their original Exercise Price shall lapse, unless the
stock option agreement provides otherwise, as to one-fourth (1/4) of the Shares
at the end

                                       8
<PAGE>   9

of the first year of continuous employment and as to one forty-eighth (1/48) of
the Shares per month of continuous employment over the next thirty-six (36)
months. Shares that are subject to repurchase at their original Exercise Price
are referred to as "Restricted Shares."

               (d) Section 83(b) Election.

                       Within 30 days after the issuance of Restricted Shares to
an Optionee under the Plan, the Optionee shall decide whether or not to file an
election pursuant to Section 83(b) of the Code and Treasury Regulation section
1.83-2 (and state law counterparts) with respect to the Restricted Shares. If
the Optionee does file such an election, the Optionee shall promptly furnish a
copy of such election to the Company.

        12. Shares Purchase Rights.

               (a) Rights to Purchase. Shares Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Shares Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Ordinary Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer, which shall in no event exceed thirty (30) days
from the date upon which the Administrator makes the determination to grant the
Shares Purchase Right. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in the form determined by the Administrator.

               (b) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.

               (c) Rights as a Shareholder. Once the Shares Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
of the Company and shall be a shareholder of the Company when his or her
purchase is entered upon the records of the duly authorized transfer agent of
the Company. No adjustment shall be made for a dividend or other right for which
the record date is prior to the date the Shares Purchase Right is exercised,
except as provided in Section 13 of the Plan.

        13. Adjustments Upon Changes in Capitalization or Merger.

               (a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Ordinary Shares covered by each
outstanding Option or Shares Purchase Right, and the number of Ordinary Shares
which have been authorized for issuance under the Plan but as to which no
Options or Shares Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Shares
Purchase Right, as well as the price for each Ordinary Share covered by each
such outstanding Option or Shares Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued Ordinary Shares
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Ordinary Shares, or any other increase or decrease as
determined by the Administrator. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall

                                       9
<PAGE>   10

be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number of Ordinary Shares
subject to an Option or Shares Purchase Right.

               (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Shares Purchase Right shall
terminate immediately prior to the consummation of such proposed action.

               (c) Merger. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Shares Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Shares Purchase Right is not assumed or substituted, the
Option or Stock Purchases Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Shares Purchase
Right shall be considered assumed if, following the merger, the Option or Shares
Purchase Right confers the right to purchase or receive, for each share of
Optioned Stock subject to the Option or Shares Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Ordinary Shares for each share
held on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration received in the merger is not
solely common stock of the successor corporation or its parent). The
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Shares
Purchase Right, for each share of Optioned Stock subject to the Option or Shares
Purchase Right, to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by
holders of Ordinary Shares in the merger.

               (d) Compliance with Incentive Stock Option Provisions.
Notwithstanding anything to the contrary herein, each adjustment made to an
Incentive Stock Option pursuant to this Section 13 shall comply with the rules
of Section 424(a) of the Code, and no adjustment shall be made that would cause
any Incentive Stock Option to become a Nonstatutory Stock Option.

        14. Time of Granting Options and Shares Purchase Rights. The date of
grant of an Option or Shares Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or
Shares Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Shares Purchase Right is so granted within a reasonable time
after the date of such grant.

        15. Amendment and Termination of the Plan.

               (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

                                       10
<PAGE>   11

               (b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Shares Purchase Rights
already granted, and such Options and Shares Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.

        16. Conditions Upon Issuance of Ordinary Shares. Ordinary Shares shall
not be issued pursuant to the exercise of an Option or Shares Purchase Right
unless the exercise of such Option or Shares Purchase Right and the issuance and
delivery of such Ordinary Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the laws of Israel, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Ordinary Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

        As a condition to the exercise of an Option or Shares Purchase Right,
the Company may require the person exercising such Option or Shares Purchase
Right to represent and warrant at the time of any such exercise that the
Ordinary Shares are being purchased only for investment and without any present
intention to sell or distribute such Ordinary Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.

        17. Reservation of Ordinary Shares. During the term of this Plan, the
Company shall at all times reserve and keep available such number of Ordinary
Shares as shall be sufficient to satisfy the requirements of the Plan.

        The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by Company counsel to be
necessary to the lawful issuance and sale of any Ordinary Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Ordinary Shares as to which such requisite authority shall not have
been obtained.

        18. Agreements. Options and Shares Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.

        19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws.

        20. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Ordinary Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee has
one or more Options or Shares Purchase Rights outstanding, and, in the case of
an individual who acquires Ordinary Shares pursuant to the Plan, during the
period such individual owns such Ordinary Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to key
employees whose duties in connection with the Company assure their access to
equivalent information.

        Approved by the Board of Directors: January 1, 1996

        Approved by the Shareholders: January 1, 1996

        Amended by the Board of Directors: April 18, 1999

        Amendment approved by the Shareholders: June 8, 1999

                                       11

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00000-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00000-of-00352.parquet"}]]